BI could double intervention in forex market

Berni K. Moestafa, The Jakarta Post, Jakarta

Bank Indonesia (BI) said it was ready to double the volume of its intervention in the foreign exchange market, in an apparent emergency move to defend the rupiah from the impact of the war raging in Afghanistan.

Bank Indonesia governor Sjahril Sabirin said on Wednesday the central bank would proceed with interventionist measures as they showed positive results.

"BI, therefore, may double the amount of funds needed for the intervention effort, to speed up the strengthening of the rupiah," he was quoted as saying by AFX-Asia newswires. He did not reveal the value of the central bank's previous intervention.

Without further intervention, he said, the rupiah would extend its downward fall.

According to him, aggressive moves are necessary because the rupiah is undervalued.

Sjahril said earlier that the rupiah's fundamental value ranged between 7,500 to 8,000 against the U.S. dollar.

The local unit was still trading below 10,000 on Wednesday, though slightly stronger than it was on Monday.

That day, the rupiah tumbled to 10,500 as the market reacted to the U.S-led attack against Afghanistan on Sunday night.

The rupiah recovered to 9,980 late Wednesday due to what some believed was dollar selling by state banks acting on behalf of Bank Indonesia.

Sjahril said earlier that the central bank had adequate foreign exchange reserves to back up further intervention.

Bank Indonesia said its foreign exchange reserves as of last Friday stood at US$28.952 billion, or slightly down from $28.957 billion a week earlier.

Sjahril's statements follow Minister of Finance Boediono saying earlier this week that more incursions into the money market had become ineffective.

Uncertainties on the global front, compounded by anti-U.S. rallies at home, gave way to speculation against the rupiah.

The global economic outlook worsened from bleak to hopeless after last month's terrorist attacks in the U.S.

In the face of this, the government promised emergency measures to ease the impact of a prolonged global economic slump but has thus far remained silent about actions being adopted to revitalize the domestic economy.

It has ruled out a fiscal stimulus package due to this and next year's tight state budget.

Boediono, however, suggested raising development spending for rural economies.

"From the (budget's) spending side, we can direct limited stimulus, though not for large (industry) sectors," he said prior to a meeting with the House of Representatives' state budget commission.

Boediono said Indonesia's economy would benefit more from a multiplier effect injected through rural economies.

"One rupiah in the hands of small income groups usually circulates faster at home than if we spend it on imports," he explained.

Elsewhere, State Minister for National Development Planning Kwik Kian Gie said the government was too poor for a fiscal stimulus package.

"The best we can do is for the government to become more efficient," he said.

The country's economy would have to rely on industries with a healthy local market share for stimulating growth, he added.