Rupiah hovers around Rp 10,000 threshold

Urip Hudiono, The Jakarta Post/Jakarta

The rupiah continued its fall against the U.S. dollar on Friday, as continued corporate demand for imports and high oil prices dragged the rupiah closer to the Rp 10,000 mark.

The rupiah did break the 10,000 barrier during intraday trading, before closing at Rp 9,985 to the dollar on suspected market intervention by the central bank.

That was down 0.3 percent from Thursday's Rp 9,950 closing -- the currency's weakest level since March 2002. It was also 1.8 percent weaker than last week's Rp 9,805 level.

Over the course of the year, the rupiah has lost about 7 percent against the greenback.

And that trend does not appear likely to change anytime soon, with the government appearing unable to strengthen the currency.

Bank Indonesia, market analysts are saying, might also refrain from using the country's forex reserve, which has dwindled to US$32 billion from $36 billion earlier this year, for an all-out defense of the rupiah.

Coordinating Minister for the Economy Aburizal Bakrie said the central bank's intervention in the local forex market would only be "temporarily effective" in curbing the rupiah's fall.

Aburizal said the country's need to spend huge amounts of dollars to import oil for its subsidized fuel program was the main cause of the pressure on the rupiah.

"The problem is that our dollar demand continues to exceed supply. If we continue subsidizing fuel, we will have to continue buying dollars, which only makes the dollar stronger.

"The rising budget deficit due to soaring fuel subsidies amid recently high oil prices has also eroded the market's confidence in the rupiah," he said.

Aburizal said it was urgent to reduce the fuel subsidy by making it a targeted subsidy focused solely on the poor.

"That way, the subsidy would also be in rupiah," he said.

Plans for such a scheme are underway, pending a comprehensive registration of the country's poor. After the registration is complete, the government can reduce the fuel subsidy through another fuel price hike, which Vice President Jusuf Kalla has signaled could occur before January next year.

Raising fuel prices, however, is a politically sensitive issue, with the last hike in March sparking nationwide protests.

As a result the government has only moved halfway in lifting the fuel subsidy, requiring industrial users to pay full market prices since last month.

Aburizal also questioned the market and the public's perception of the rupiah having a psychological level of Rp 10,000, asking why this so-called psychological level was not at Rp 7,000 or even Rp 15,000.

Meanwhile, Bank Indonesia deputy governor Aslim Tadjuddin said the central bank remained on guard to continue defending the rupiah through market interventions.