BI to prevent rupiah from further tumble

BI to prevent rupiah from further tumble

PRAGUE (Dow Jones): The Indonesian central bank would use all
available policy tools to prevent the rupiah from falling beyond
9,000 to the dollar on political worries, the acting governor of
the bank said Sunday.

Anwar Nasution said the bank is prepared to use its foreign
exchange reserves, enforce anti-speculation rules and perhaps
raise interest rates to support the currency, which has taken a
battering following the recent bombing of the Jakarta Stock
Exchange that killed 15 people.

"We are willing to defend the rupiah," Anwar told Dow Jones
Newswires on the sidelines of the International Monetary Fund and
World Bank annual meetings.

"There is no reason for a weakening of the rupiah. There are
signs the economy is growing strongly - exports, both oil and
non-oil are good," he said.

Anwar said the disarming of pro-Jakarta militia in West Timor
and the "good news" he expects will come out of a meeting next
month of foreign creditors under the Consultative Group on
Indonesia should ease pressure on the rupiah.

Indonesia's government debt totals $135 billion, $75 billion
of which is foreign.

World Bank President James Wolfensohn has said that if
Indonesia wants a successful outcome from the Tokyo CGI meeting,
it must stop the violence in West Timor that left three United
Nations aid workers dead earlier this month.

But with violence continuing in the strife-torn province of
Aceh and relations between the government and supporters of
former president Soeharto still extremely strained, analysts
expect the rupiah will weaken toward Rp 9,000.

The rupiah slipped to Rp 8,838 against the U.S. currency in
late trading on Monday from Rp 8,805 on Friday on dollar-demand
from local banks, dealers said.

Still, dealers said they couldn't find an exact reason for the
local banks' dollar demand. "It seemed that they buy the dollar
for their own, not on behalf of their customers," one dealer
added.

Most offshore participants stayed on the sidelines keeping
their dollar long positions, dealers said.

Anwar said the bank is well-placed to support the currency
because of its plentiful foreign currency reserves - $27 billion
in net terms - thanks to high oil prices and strong exports.

With oil prices near 10-year highs, Indonesia - Asia's only
member of the Organization of Petroleum Exporting Countries - is
making windfall gains from royalties on oil output as its budget
was based on much lower oil prices.

The central banker, who was appointed in July after Governor
Sjahril Sabirin was detained amid allegations of corruption, said
a dollar rate below Rp 8,000 is more reflective of economic
fundamentals.

Authorities extended Sjahril's detention last week for another
month - the last permitted under local law. Sjahril has
vigorously denied the corruption charges.

Anwar said the central bank will continue to enforce currency
rules introduced to curb speculation in the rupiah.

"We will enforce the rules," he said, referring to limits on
forward positions in the local currency.

If the rupiah remains weak, Bank Indonesia would also consider
raising interest rates to combat import price inflation, but only
if progress has been made on bank restructuring, Anwar said.

Analysts say higher rates could make the cost to the
government of bailing out banks prohibitive. The administration
has recapitalized the banks with bonds that carry coupons linked
to the benchmark interest rate.

"We are flexible (on raising) interest rates if restructuring
pushes ahead," Anwar said. He reaffirmed that inflation is likely
to rise by between 7 percent and 9 percent in the year to the end
of December.

Turning to urgings over the weekend by the Group of Seven
industrialized nations for OPEC members to "take actions to
contribute to a reduction in oil prices," the central banker said
current prices are due to demand as well as supply issues.

"I think they should certainly consider lowering taxes," he
said, referring to high taxes on oil in many Western countries.

Oil producers argue that these should be lowered to reduce the
consumer cost of oil and therefore the drag on the world economy.
However, some leaders of industrialized nations maintain that
lowering taxes will merely spur demand and put further pressure
on prices.