Rupiah set at 4,000 to U.S. dollar in state budget

JAKARTA (JP): The government set the U.S. dollar-rupiah exchange rate at 4,000 in its calculations for the 1998/1999 state budget.

President Soeharto said last night that the government did not want to see the rupiah too strong, thus weakening the competitiveness of Indonesian exports.

"Nor should we let the value of our rupiah to be too low, as it will put an excessive burden on our economy," Soeharto said in his state budget address.

"On this basis, an exchange rate of Rp 4,000 to US$1 has been used in drafting the current state budget," he added.

Minister of Industry and Trade Tunky Ariwibowo said the decision to set a 4,000 level for the rupiah's exchange rate was based on the respective capabilities of Indonesia's exporters and importers.

"In the current situation, the 4,000 level is appropriate for both exporters and importers. It will maintain the competitiveness of Indonesian exports and at the same time it will not put a greater burden on imports," he said.

Minister of Finance Mar'ie Muhammad acknowledged that the 4,000 level was optimistic, but the government would do whatever was necessary to strengthen the rupiah to that level.

"We will do our utmost to get the rupiah to our target, including by continuing reforms. There is no other choice available now but undergoing reform," Mar'ie said.

However, Mar'ie said, the reforms would not impress market players and would not help the rupiah if neighboring countries did not take similar steps to improve their economies.

"If every country, including Indonesia, does their homework in improving their competitiveness, 4,000 rupiah to one U.S. dollar would be achievable," he said.

The rupiah hit a historic low of 7,750 to the U.S. dollar yesterday morning before recovering to 6,950/7,250 at the close in the Jakarta market.

The rupiah has lost more than 60 percent of its value against the U.S. dollar since July, when the financial crisis first hit the Southeast Asian region.

Mar'ie said the rupiah's current exchange rate against the U.S. dollar at above 7,000 would be temporary as it was very much influenced by negative market sentiments.

When these sentiments turned positive, the rupiah would strengthen, he said.

Market sentiments, Mar'ie said, were influenced by both economic and noneconomic factors.

Economic factors included the levels of public and private sector foreign debt, while noneconomic factors were issues such as the transparency of the legal system.

Minister/State Secretary Moerdiono added that the rupiah's free fall against the U.S. dollar was accelerated by diminishing investor confidence in the currency and Indonesia's economic outlook.

"Therefore, our agenda should focus on efforts to restore confidence in the rupiah and the prospects for our economy," Moerdiono said.

Mar'ie said that if all efforts failed and the rupiah remained far higher than the targeted 4,000 level, the government would make adjustments to the 1998/1999 budget.

"In this unpredictable environment, adjustments are very important. So if... the situation is like that (that the rupiah does not achieve its target), we will certainly make some adjustments," Mar'ie said. (rid)