Govt sees no concern as rupiah slumps over 10,000

Govt sees no concern as rupiah slumps over 10,000

The Jakarta Post, Jakarta

The rupiah continued its fall against the U.S. dollar for the
seventh consecutive trading day on Monday, beginning the week at
a new low level of Rp 10,000 as high oil prices kept fueling
local corporate demand for imports.

Despite the situation, the government still downplayed the
possible negative impact on Indonesia's economy, convinced that
it was nothing extraordinary and that it would eventually subside
on the country's improving investments and exports.

The rupiah closed at Rp 10,030 on Monday, down from its
closing of Rp 9,985 on Friday. Friday's intraday trading
witnessed the currency brushing past the Rp 10,000 mark.

Monday's closing continued to be the rupiah's worst
performance since March 2002, during which the currency had
traded at Rp 10,080 a dollar, according to data from Bank
Indonesia (BI).

Coordinating Minister for the Economy Aburizal Bakrie said the
rupiah's latest level against the greenback was not of particular
concern, saying that although it would affect the government's
payment of foreign debts, it should also give exporters a
competitive advantage.

"Rp 10,000 is not a sacred number. Why shouldn't it be Rp
9,000, or Rp 11,000, or 15,000?" he said after a Cabinet meeting
with the central bank to assess the situation.

"We do not have to put a line of defense for the rupiah at Rp
10,000, as its rate will continue going up and down according to
our free floating exchange rate policy. But we are sure that in
the long run, a rate of Rp 9,400 by next year can still be
achieved."

Aburizal explained the difference between the current
situation and the 1997 financial crisis, when the rupiah weakened
amid Indonesia experiencing both a negative current account and a
capital flight.

BI governor Burhanuddin Abdullah said Indonesia's current
account during this year's second quarter had reached a deficit
faster than the central bank's expectations, as the country's
imports had already risen by 30 percent, while exports only rose
by 14 percent.

He said BI was forecasting the country's current account to
reach a $2.7 billion surplus by the end of the year.

Burhanuddin agreed with Aburizal's projection, saying the
rupiah would strengthen next year and Rp 9,400 was not
implausible considering the country's improving economic
fundamentals.

"What is important for BI is how businesses can plan their
activities. Prices are that way, going up and down, it is we who
have to anticipate these changes," he said, adding that the
central bank would continue to intervene in the market.

"Later this month, BI will also sign a bilateral swap
arrangement with Japan worth $6 billion, followed with China and
South Korea, of $2 billion each."

Minister of Finance Jusuf Anwar -- who was previously
concerned that the country's forex reserve would be exhausted due
to oil imports -- said the state budget was also still at a Rp 22
trillion surplus as of Aug. 15.

"The market should not panic because the state still has
enough money for a long time to come," he said.

The Indonesian Chamber of Commerce and Industry (Kadin)
chairman Mohamad S. Hidayat said the private sector hoped this
would be only a temporary occurrence.

"Kadin asks the government to state publicly at what rate it
wants the local currency be against the U.S. greenback and for
how long," he said, adding that such a move would discourage
financial market speculators from playing with the rupiah.

National Economy Recovery Committee (KPEN) chairman Sofjan
Wanandi said the declining exchange rate was a result of the
government's reluctance to remove the fuel subsidy.

"(Such reluctance) has eventually contributed to the declining
confidence over the country's capability to manage its economy,"
he said.

The only way to restore confidence was to have the courage to
increase domestic fuel prices gradually, he said, or else the
foreign reserves would continue to be drained.