Rupiah depreciation unlikely to affect business: Minister

Rendi A. Witular and Urip Hudiono, The Jakarta Post, Jakarta

The sharp depreciation of the Indonesian rupiah against the U.S. dollar is unlikely to affect the country's business sector much as the main driver behind the depreciation was external in the form of the recently high demand for dollar-denominated assets.

Coordinating Minister for the Economy Aburizal Bakrie said on Wednesday that the government was therefore closely cooperating with Bank Indonesia (BI) to help ease the pressure on the rupiah, as well as stabilize the country's overall macroeconomic indicators.

"To some extent, the rupiah's decline is not worrisome for the government or the business community as the causes of the pressure are external," he said.

Aburizal said there was a high demand from global investors for dollar-denominated assets at the moment following the U.S Federal Reserve's recent decision to raise its benchmark interest rates to stabilize the country's monetary situation.

He added the greenback's recent strengthening was a temporary phenomenon and that the government and BI would wait for the pressure to ease before taking any steps to help stabilize the rupiah.

"It is not the rate that we are concerned about. As long as the fluctuations are not sharp, they will be comfortable enough for us," he said, adding that the government expected the rupiah to strengthen after it received the proceeds from the recent sale of dollar-denominated bonds worth some $1 billion.

At the market, the rupiah continued its week-long slump, closing to a new low of Rp 9,613 per dollar, from Rp 9,575 the previous day.

Analysts said a continuing slide was inevitable as long as the demand for dollars from corporations to service their debts and import needs continued to exceed the supply of dollars from investments and export revenues.

Bank Buana director Pardi Kendy concurred with Aburizal, pointing to the possibility that local investors were moving their funds into more attractive dollar-denominated investments.

Analyst Khalil Rowter, however, disagreed with Aburizal's belief that the rupiah's depreciation would not affect the business community.

"It might have started as a microeconomic issue in the market, but it could develop into a bigger macroeconomic problem," he said, adding that the government and BI should quickly coordinate the purchase of dollars with the corporate sector.

BI raised its benchmark interest rate to 7.70 percent on Wednesday, up from 7.53 percent previously, which managed to absorb some Rp 46.07 trillion of liquidity from the market.

Analyst Farial Anwar said the central bank's measures were too late to suppress either inflation or the rupiah's volatility, and called them "reactive".

"They should have been more pro-active, starting to take action at the time the government increased fuel prices a month ago."