BI could double intervention in forex market

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.