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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