Rupiah fall only temporary: Govt

Rupiah fall only temporary: Govt

The Jakarta Post, Jakarta

The rupiah fell to a 19-month low on Tuesday as economic and
political uncertainties created jitters among companies, which
lately have been heavy buyers of dollars.

But Minister of Finance Boediono said the rupiah's fall was
only temporary as the large current account deficit in the U.S.
would eventually push the American greenback lower.

"In my opinion, this is only a short-lived trend. In fact, in
the medium-term, the dollar will weaken," he said.

He added that as part of efforts to help stabilize the local
unit, the government would dispose of its dollar-based assets. He
did not provide details, but a Ministry of Finance official said
that part of the government's tax revenue was in dollar notes.

The rupiah closed at Rp 9,260 against the dollar on Tuesday,
lower than Monday's close of Rp 9,125. The local unit plunged to
as low as Rp 9,345 during the day, but dealers said that
intervention by the central bank helped to prevent the rupiah
from a deeper plunge.

They added that expectation of a hike in U.S. interest rate
later next month, soaring oil prices, and domestic political
uncertainty ahead of the July 5 presidential election had
prompted local corporations to purchase dollars as they feared
the local unit might fall further. The companies need the hard
currency to repay maturing overseas debts and finance the import
of raw materials.

Expectations the U.S. Federal Reserve will hike interest rates
from their 46-year low have prompted investors to switch their
investment to dollar-based assets, which, in the case of
Indonesia, harmed the rupiah.

But remarks from Boediono suggest that the fall in the rupiah,
which has been the worst-performing currency in the Asia region
so far this year, is not a sign of the reemergence of the late
1990s currency crisis, given particularly the country's stronger
foreign exchange reserves, and more stable macroeconomic
conditions.

Nevertheless, the fall in the local unit, especially as the
central bank seems to be unable to stem its decline, has created
fears of inflationary pressures at home, and might force the
central bank to start pushing domestic interest rates higher,
both of which could harm the overall economic recovery process.

Meanwhile, the fall in the local unit contributed to a 2.1
percent decline in the Jakarta Stock Composite Index to 717.13
points on Tuesday. The index has fallen 12 percent since its
April 27 high.

Falls in many Asian stock markets also affected the local
market.

But traders said that late bargain-hunting in select blue
chips lifted the index from its intraday low. Decliners led
gainers 101 to 25, with 37 stocks unchanged. Volume was 1.1
billion shares valued at Rp 764 billion.

Bellwether PT Telkom lost Rp 350, or 4.6 percent, to Rp 7,250
on profit-taking, and after its American Depositary Receipts fell
0.5 percent to US$16.86 on Monday.

Select banking blue chips ended lower on renewed worries that
the central bank may increase interest rates to prevent the
rupiah from falling further.

Oil producer Medco Energi International ended up Rp 25, or 1.9
percent, at Rp 1,375 amid reports that independent directors at
Australia's Novus Petroleum Ltd. recommended that Novus
shareholders accept the revised Medco takeover offer.