Citigroup sees weaker rupiah

Citigroup sees weaker rupiah

Wahyoe Boediwardhana, The Jakarta Post, Denpasar

International financial firm Citigroup sees the reasonable
average exchange rate of the rupiah against the U.S. dollar next
year at Rp 9,000 per dollar.

Speaking during a seminar on mutual funds here on Thursday,
Citigroup asset management vice president TT Antonio Yongnata
said that it would be difficult for the rupiah to get to the Rp
8,600 level as assumed under the government-proposed 2005 state
budget, given the trend in the regional monies that were also
weakening.

"For example, South Korea has lowered its interest rate, while
China and Japan are actively purchasing treasury bonds. They're
relinquishing their money to buy dollars, which weakens their
currencies.

"If monies in other countries weaken and rupiah remains
strong, it will be hard on Indonesia's exports as our exports
won't be competitive," said Yongnata.

Currently, he added, the rupiah seemed to be weakening, even
more than most Asian currencies. The rupiah currently hovers at
around Rp 9,300 per dollar.

"But even if the rupiah strengthens during the next few
weeks ... after the (second round of the presidential) election,
it will be only temporary as it's just a form of euphoria. The
rupiah will certainly crawl back to its fundamental level at Rp
9,000," said Yongnata.

He asserted that the U.S. dollar remained the most attractive
foreign currency to invest in as it would continue getting
stronger, along with the perpetual increases in the benchmark
rate by the U.S. Federal Reserve.

Furthermore, he saw that the government's target of a 6.5
percent central bank interest rate next year was quite feasible,
but asserted that the conservative target should be at least 7.3
percent.

The government last month proposed the 2005 state budget
draft, which is based on a number of macroeconomic assumptions,
including the expected exchange rate of Rp 8,600 per dollar, the
Bank Indonesia three-month interest rate of 6.5 percent, an
average oil price of US$24 per barrel, and overall economic
growth of 5.4 percent. Some analysts have previously described
the government's economic assumptions as overly optimistic. The
House of Representatives is currently deliberating upon the
proposed budget plan.

Yongnata also said that the $24 per barrel average oil price
target was not realistic as oil prices have risen to record
levels, and are now hovering at around $43 per barrel, due to a
combination of supply disruption threats and fast rising demand,
particularly from the energy hungry economy of China.

"Oil exporting countries have not really made significant
progress. In addition to that, the OPEC plan to increase the
production quota during their meeting in September would not be
feasible as their current production is already at 90 percent of
total capacity," he said.

Therefore, Yongnata was convinced that the House of
Representatives would likely make major changes in the proposed
2005 state budget assumptions.

"The assumptions are way too optimistic. We're certain that
there will be many revisions made before the House endorses the
draft," he affirmed.