BI says forex reserves enough to defend rupiah

BI says forex reserves enough to defend rupiah

The Jakarta Post, Jakarta

Bank Indonesia said on Friday it was ready to intervene in the
currency market to protect the rupiah amid worries that domestic
antiwar protests could turn violent.

Bank Indonesia Governor Sjahril Sabirin said on Friday that
the country currently had more than enough foreign exchange
reserves to defend the local currency.

"We will continue to rely on intervention and money market
operations to help the rupiah," Sjahril said as reported by Dow
Jones.

The country's foreign exchange reserves currently stand at
about US$31 billion.

The rupiah has been relatively stable since the U.S. launched
its attack on Iraq. The local unit closed slightly stronger on
Friday at Rp 8,965 per U.S. dollar from Rp 9,030 on Thursday.

But it is expected that the war in Iraq will spark nation-wide
protests, which could create negative sentiment and put pressure
on the local unit, particularly if the rallies turn into violent
anti-Western protests.

There are fears that this situation could develop if the war
drags on for a long time.

Even during the run-up to the war, most Indonesians made it
clear they opposed any military solution to the U.S.-Iraq
standoff. The fact that the war is being conducted despite the
absence of UN support adds to the opposition here.

Such fears are understandable given the country's past
experiences with anti-Western protests.

There was a wave of anti-Western rallies here in late 2001
following the military strikes on Afghanistan by the U.S. and its
allies.

At the time, militant groups also conducted "sweeps" against
foreigners in the country, prompting several foreign firms to
temporary halt business operations.

If this were to occur again, it would create jitters in the
currency market and put pressure on the rupiah, which in turn
would undermine the country's economic recovery.

But Sjahril said that so far protests had been relatively
peaceful, contributing to the relatively stable rupiah.

Elsewhere, Sjahril said that to help limit the negative impact
of the Iraq war on the country's economy, the central bank would
continue to guide interest rates lower.

But he was quick to say the pace of the rate decline would be
slower than initially projected due to the war.

The central bank has been guiding its benchmark interest rate
lower for the past year. The interest rate is now above 11
percent, compared to more than 17 percent late in 2001.

A lower interest rate environment would help ease the burden
on the state budget in covering the interest rate on the
government's huge domestic debt.

The lower rate is also expected to make bank borrowing cheaper
for the real sector, allowing for expanded operations.