BI to continue to supply dollars to help ailing rupiah

BI to continue to supply dollars to help ailing rupiah

JAKARTA (JP): Bank Indonesia plans a fresh intervention to
protect the rupiah from the expected surge in the demand for U.S.
dollars at the year-end, deputy governor Miranda Goeltom said on
Wednesday.

Miranda said that the measure was also aimed at helping
contain the stronger inflationary pressure, which traditionally
occurs during the year-end.

"We will continue to supply dollars to the market to help ease
pressure against the rupiah," she told a press conference
following a critical closed-door meeting between leaders of the
House of Representatives and the members of Bank Indonesia's
board of governors, which was also attended by Governor Sjahril
Sabirin.

It was Sjahril's first meeting with the legislature after his
recent release from the custody of the Attorney General's Office
over alleged involvement in last year's high profile Bank Bali
scandal.

Miranda said that the intervention measure would be maintained
to help the central bank meet its monetary target.

But she also said that maintaining a credible level of foreign
exchange reserves was equally important to provide confidence in
the economy.

She said that the foreign exchange reserves at Bank Indonesia
were still at a healthy level of more than US$28.6 billion.

The rupiah has been under strong pressure over the past few
months. The local unit ended at Rp 9,450 per U.S. dollar late on
Wednesday, slightly higher than Rp 9,510 on Tuesday. But the
rupiah was still more than 25 percent below levels early this
year.

Dealers said that the prospect of Bank Indonesia intervening
in the market had helped strengthen the local unit during the
day.

Miranda declined to disclose the year-end target level for the
rupiah.

But she said that the current level of the rupiah was still
very much undervalued.

Miranda said that the rupiah has been weakening lately due to
various factors including higher demand for dollars from
corporations to repay foreign debt and to finance greater imports
at the year-end, as well as domestic political factors.

Coordinating minister for the economy Rizal Ramli had
instructed state-owned companies that need to repay foreign debts
to get dollars from the central bank. The move was aimed at
reducing demand for dollars in the open market, thus relieving
pressure on the rupiah from foreign debt repayment.

Miranda said that if the rupiah continued to weaken, it would
further create inflationary pressure because of the relatively
high import content of domestic production activities.

She said that the year-end festivities had also created
inflationary pressure.

She said that the central bank would also continue to absorb
excess liquidity through the Bank Indonesia SBI promissory notes
to help ease the inflationary pressure.

Bank Indonesia initially forecast inflation this year to be
within the 5-7 percent range, but the higher inflationary
pressure at the year-end forced the central bank to revise its
2000 inflation target to 9-10 percent.

The weighted-average interest rate of the one-month SBI notes
continued to increase to 14.42 percent on Wednesday at the weekly
auction compared to 14.32 percent previously.

Meanwhile, House Speaker Akbar Tandjung urged Bank Indonesia
board of governors to focus its attention on stabilizing the
ailing rupiah and curbing inflation.

He also supported the current board of governors in taking any
crucial policy decisions although five of the eight members of
the board had recently tendered their resignation.

He said that any policy implemented by the board would be
"valid" until the replacements for those who had resigned had
been installed.

Akbar also called on President Abdurrahman Wahid to agree to
meet Sjahril to help ease pressure on the rupiah.

Since returning to Bank Indonesia, after five months of
detention, Sjahril has failed to meet the President, who has long
insisted Sjahril step down as part of a major reshuffling at the
central bank.

Sjahril has refused to resign. The President has said that
the case against Sjahril would soon be brought to court.

The government has proposed a bill to the parliament to amend
the central bank law, which when once approved would remove the
legal obstacle to oust Sjahril.

The House is currently in a month-long recess period ending in
the middle of January next year. The House special team would
resume debating the proposed bill after the recess ends.

Factions at the House agreed Wednesday to allow the special
team to continue discussing the proposed bill during the recess
period but only for five days, and they would not be allowed to
take any decision. (rei)