BI drives firms to sell dollars

BI drives firms to sell dollars

JAKARTA (JP): Bank Indonesia, the central bank, introduced
yesterday a new foreign exchange trading facility for export-
oriented companies in its latest move to shore up the falling
rupiah.

Bank Indonesia Governor J. Soedradjad Djiwandono said the new
facility included arrangements for swap and forward purchases.

"The swap facility is aimed at encouraging these exporters to
unload their dollar holdings," Soedradjad said after the
announcement.

The new swap facility allows export companies to buy dollars
through forward transactions with 11 foreign exchange banks,
appointed by Bank Indonesia. The appointed banks can then
continue the transaction with the central bank.

At the same time, the export-oriented companies can also sell
their foreign exchange earnings through forward transactions with
Bank Indonesia. Previously the foward transaction could be
carried out only outside the central bank.

The central bank governor did not say how effective the new
move would be in stabilizing the rupiah but he said the new
facility would protect exporters from the sharp fluctuation of
the rupiah against the dollar and to ensure that they would get
the dollars they need from the central bank.

This would also guarantee that the export companies would not
lose their money from foreign exchange transactions should the
rupiah continue to drop against the dollar, Soedradjad said.

He said the length of the facility would be adjusted to
demand, and the premium rate of the swap or the forward trading
would be based on the current market rates at the time of the
transaction.

The central bank governor said the new scheme involved 11
banks, five of which are state-owned.

Minister of Industry and Trade Tunky Ariwibowo said yesterday
there were 580 registered export-oriented companies which were
eligible for the forex trading facility.

The minister said he was optimistic that the new facilities
would help a smoother flow of funds for export and import related
activities.

"Export companies need dollar as well as rupiah in their
operations, but what we see now is an imbalance in the supply and
demand of the foreign exchange," he said.

Many companies held their U.S. dollar holdings from their
export revenue because they lacked the confidence that the rupiah
would gain strength against the U.S. greenback again, he said.

Tunky said he expected the supply and balance of the dollar in
the market would balance out again, if the new scheme worked out.

"For these companies to hold their dollars is normal because
of the unpredictability of the rupiah in the market, but this new
facility will hopefully give confidence to exporters to release
their dollar holdings," he said.

The 580 export related companies, most of which operate in the
textile industry, have been given favorable treatment including
lower interest rates on rediscount facilities.

Bank Indonesia issued early last month a ruling limiting
forward forex trading by domestic banks to nonresident customers
to US$5 million in a bid to confine speculative dollar buying.

But the move was unsuccessful as the rush for dollar
continued, with rupiah further losing ground.

The rupiah plunged to a new historic low of 3,725 against the
American dollar in midday trading yesterday before recovering to
3,395/3,405 at close. The rupiah has lost about 50 percent of its
value against the American greenback since early July.

Soedradjad said this week's plunge was partly due to the sharp
increase in demand for dollar from local companies either to
finance their offshore debts or imports. (das)

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