Rupiah extends rally against dollar

Rupiah extends rally against dollar

Urip Hudiono and Muninggar Sri Saraswati, The Jakarta Post, Jakarta

The rupiah continued its upward rally against the U.S. dollar for
the third day in a row, following concerted measures from
government agencies to defend it -- the latest being controlling
the dollar purchases of state oil and gas firm PT Pertamina.

The rupiah closed its trading at 9,570 per dollar on Thursday,
slightly higher than 9,573 the previous day -- and Monday's 9,750
three-year low.

The latest gain was mainly due to Bank Indonesia's increase
the benchmark interest rates of its SBI promissory notes, and
moves to limit the room of commercial banks for forex speculation
by reducing their net open position and possibly increasing their
reserve requirements stashed at BI.

The central bank will also hold more frequent auctions of its
SBI notes, and roll out a new debt instrument -- the three-day
fine-tuning contraction (FTK) note -- as well, to more
effectively absorb any excess liquidity in the market.

Meanwhile, the State Minister of State Enterprises, Sugiharto,
said the government and BI had also agreed to tightly monitor
Pertamina's purchasing of dollars to a maximum of US$50 million
per day.

"We have asked Pertamina to consult with BI if its dollar
needs exceeds that amount," he said.

"Pertamina from now on will also get its dollars from the
central bank through the state-owned banks of BNI, BRI and Bank
Mandiri."

Pertamina needs about $1 billion each month to finance the
country's oil imports, creating a huge dollar demand in the
market which consequently puts the local unit under heavy
pressure.

Commenting on the central bank's latest monetary measures,
Bank Mandiri chief economist Martin Panggabean praised the
efforts, particularly regarding BI's decision to be more
aggressive in its intervention into the market.

"The central bank should not constrain its own monetary
authority by holding only limited numbers of auctions for its SBI
notes," he said.

BI usually holds auctions for its one-month SBI notes every
two weeks, and for its three-month notes once a month.

Martin, however, said the government and central bank still
needed to work out how to repatriate the many export revenues
stored overseas.

"The government should issue a regulation requiring exporters
put their proceeds back into the country after a certain time
limit, like the Thai and Malaysian governments have done," he
said.

"This would add our currency reserves, and therefore help
strengthen the rupiah."

Bank Indonesia Governor Burhanuddin Abdullah has long voiced
similar concerns about export proceeds being stashed overseas in
foreign currencies, which he said had created huge discrepancy
between the value of exports and the cash coming into the
country, which in turn had strengthened foreign exchange
reserves.

Such measures would not contradict Indonesia's free currency
traffic policy, according to Martin, which was implemented in the
country's agreement with the International Monetary Fund (IMF)
during the 1997-1998 Asian financial crisis,

"Exporters can put their funds overseas again later on if they
want to," he said.

"The important thing is to get the funds into the country
first, to secure a sufficient supply of dollars in the market."