Rupiah is likely to remain stable in next two months

JAKARTA (JP): The rupiah will remain stable in the next two months despite the flat growth of Indonesia's non-oil exports and stronger inflationary pressure, a foreign bank executive predicted yesterday.

Johannes Sjarif, the treasury relationship manager of the Netherlands-based ABN-AMRO Bank, estimated that the rupiah's depreciation against the U.S. dollar will reach less than five percent for the whole 1994.

The estimated five percent is higher than last year's figure of 3 percent, but Johannes said that his estimate is much lower than the six to seven percent projected by economists early this year.

The dollar has thus far already gained 3.5 percent since January this year to Rp 2,183 from Rp 2,110 as of last December.

Johannes attributed the lower-than-estimated depreciation to the healthy performance of the country's foreign exchange reserves.

"The inflows of foreign currencies will continue growing in line with the rise in foreign investment both in the industrial sector and in the capital market," he told a seminar on trade financing held by his bank.

Speakers at the seminar, which discussed the 1993 revision of uniform customs, practice for documentary credits, the use of letters of credit (L/C) in local trade and foreign exchange dealings in Indonesia, included Walter Tan, the senior vice president of ABN-AMRO Bank's branch in Singapore and Henk Mulder, the vice president of the bank's Indonesian branch.

Investment

He said that the relaxation of the government's investment policy would attract more foreign investors and that logically it will, in return, boost the country's foreign exchange reserves.

According to Bank Indonesia (the central bank), the country's official reserves as of August reached a manageable level of US$12.35 billion, equivalent to the value of 4.85 months of non- oil imports.

The rise in crude oil prices to between $18 and $19 per barrel, as compared to the government's targeted price of $16 per barrel, has significantly improved the balance of payments projection so that the lower than estimated growth in non-oil exports will not really deal a blow to the country's foreign exchange reserves.

The country's non-oil exports dropped for the first time in the first quarter of this year to US$1.61 billion, or 1.6 percent lower than those in the corresponding period of last year, due mainly to the drop in exports of textile-related products.

Non-oil exports recovered in June, rising by around 15 percent to $2.7 billion from the same period of last year.

Johannes acknowledged that the inflation rate, which has reached 7.38 percent in the first nine months of this year, may further increase.

Economists estimate the inflation rate will surpass the government's maximum limit of 10 percent due to the higher than expected increase in prices of food and construction materials and the government's decision to raise electricity tariffs beginning next month.

Johannes estimated that the stronger inflationary pressure will prompt commercial banks to raise their time-deposit rates to between 14.5 and 15 percent per annum from between 12 and 13.5 percent at present.

"The higher interest rates will enable them to curb capital flights as depositing rupiah in time deposits will still give good returns," he said.

Johannes said that Bank Indonesia's recent move to widen the spread (band) of the sale and buy rates of the rupiah against the greenback to Rp 30 from Rp 20 will also discourage capital flight as the band will give more risk to short-term speculators.(hen)