Rupiah hits four-year low against dollar

Rupiah hits four-year low against dollar

The Jakarta Post, Jakarta

The rupiah continued its crumble against the U.S. dollar on
Monday, dragging the stock market along with it, as oil prices
shot above $70 a barrel and the government still showed no signs
of taking any decisive action to support the nation's currency.

The rupiah fell for the tenth consecutive day on Monday,
closing down by 4.2 percent to Rp 10,840 against the dollar, its
lowest rate since November 2001.

The rupiah's plunge started from the day's opening session,
immediately dropping to Rp 10,450 a dollar, compared to Friday's
close of Rp 10,400.

Indonesian share prices were dealt a severe blow from the
situation, as investors released stocks that were considered
prone to a weakening rupiah, pushing the Jakarta Stock Exchange
Composite Index down 5.16 percent to a year low of 994.770.

Panic selling was evident during the day's trading, with the
drop occurring almost across the bourse, including stocks of
companies that would benefit from higher oil prices -- signaling
deteriorating investor confidence.

Rising oil prices affected the rupiah as state oil and gas
firm PT Pertamina having to pay more for its oil imports.

Sweet crude oil for October delivery in New York shot up
US$4.67 to $70.80 a barrel. In London, Brent oil price also shot
above $70 per barrel, although it then eased down to $69.32.

The soaring oil prices were due to Hurricane Katrina that
forced energy companies in the Gulf of Mexico to evacuate rigs.

Further pressure on the rupiah has come from local companies
who are in constant need of dollars to finance their large import
components and to service their foreign debts.

The government was still upbeat that the situation was
"manageable" and was dragging its feet in making the decision to
cut fuel subsidies by raising domestic fuel prices, concerned by
the adverse political consequences it could bring.

The central bank itself was considered slow in implementing
the needed monetary policies to help the rupiah, especially in
raising interest rates to absorb excess liquidity and tightening
the market from speculative trading.

Bank Indonesia (BI) Governor Burhanuddin Abdullah said on
Monday that the central bank would raise interest rates soon, but
in a careful manner, declining to provide details.

"The interest rate hike will be conducted carefully as to not
affect the economy," he said. "All our monetary policies to cope
with the situation will be taken in a market-friendly manner."

Concerning plans requiring local companies to repatriate
their dollar export revenues, Burhanuddin brushed aside the
feasibility of implementing such a plan.

He said from the country's $65 billion in export revenues,
some $55 billion has already been repatriated, while the
remainder was still parked abroad.

But there was still a slight positive signal with BI Deputy
Governor Hartadi Sarwono saying that Indonesia would double its
current bilateral swap arrangement with Japan to $6 billion to
strengthen the country's foreign exchange reserves.

"The funds will function as a standby reserve," he said. The
government also plans to double its bilateral swap arrangements
with China and Korea, currently standing at $1 billion each.

At present, Indonesia's forex reserve stands at $32 billion.