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.