Govt, BI to supply dollars to Pertamina to save rupiah

Govt, BI to supply dollars to Pertamina to save rupiah

Urip Hudiono, The Jakarta Post, Jakarta

Concerned that the rupiah's current slump to a two-year low might
start hurting the economy, the government and the central bank
finally stepped in to defend the currency, supplying state oil
and gas firm PT Pertamina's U.S. dollar needs for oil imports
directly out of the country's foreign exchange reserves.

The government and Bank Indonesia (BI) will also arrange the
dollar supply for other state-owned enterprises (SOEs) through
appointed state banks and make it compulsory for them to place
their foreign exchange earnings from exports in local banks.

The central bank also announced a new inflation-linked
reference rate, dubbed the "BI rate", which will initially be set
at 8.5 percent.

Based on the central bank's one-month promissory note interest
rate, the BI rate will be effective for the next three months. It
is also expected to mop up excess market liquidity, which is
believed to also be hurting the rupiah, as well as better manage
the country's inflation outlook, which had come under pressure
from the rupiah's recent decline.

The rupiah closed lower on Tuesday for the seventh consecutive
trading day, at Rp 9,870 per dollar, compared to Monday's Rp
9,855 per dollar.

Data from Dow Jones shows that Tuesday's rate was the lowest
since March 2002, when the rupiah hit the 9,873 level.

BI reported that the rupiah exchange rate in this year's
second quarter averaged Rp 9,556 per dollar, exceeding the Rp
9,300 rate assumed in the 2005 state budget.

BI Governor Burhanuddin Abdullah said in a press conference on
Tuesday that the measures had been taken to strike a better
balance between dollar supply and demand in the country.

"The requirement to put SOE export earnings in domestic banks
is expected to strengthen the country's foreign exchange supply
side," he said.

The rupiah's recent slump was due to strong dollar demand from
local companies to cover their import and debt servicing needs,
particularly in the case of Pertamina, which recently needed a
large supply of dollars for its oil imports to secure the
country's fuel stocks. The situation has become worse as global
oil prices recently broke through the $60 per barrel barrier and
the American greenback continued to strengthen against other
major currencies.

Anggito Abimanyu, the director of the Ministry of Finance's
fiscal policy unit, said that by taking Pertamina's dollar demand
-- which reaches $50 million a day -- out of Indonesia's $1
billion daily forex market, the distortion it created could be
expected to ease.

Pertamina had previously received its dollar supply from state
banks appointed by the government and BI.

"The disbursements were previously 95 percent in rupiah, which
were then converted to dollars," Anggito said, adding that state
power firm PT PLN and telecommunications company PT Telkom would
from now get their dollar supplies from state banks as well.

He added that the current interim measures would be unlikely
to endanger Indonesia's foreign exchange reserves. In addition,
they would be supported by a recent "bilateral swap arrangement"
between ASEAN central banks.

Indonesia's forex reserves as of the third week of June stood
at $34.38 billion, up $107.4 million on increasing export
earnings.

The support agreement between the region's central banks
amounts to $2 billion, with an additional $2 billion from Japan,
and $1 billion each from China and South Korea.