Rupiah to remain under pressure: Minister

Urip Hudiono, The Jakarta Post/Jakarta

As domestic demand for the U.S. dollar remains high amid soaring global oil prices, the government sees a rough road ahead in its efforts and ability to strengthen the rupiah, the chief economics minister has said.

"It will be difficult for the rupiah to strengthen significantly during the second half of the year," Coordinating Minister for the Economy Aburizal Bakrie said during a discussion on Wednesday with the Indonesian Chamber of Commerce and Industry (Kadin).

The rupiah averaged Rp 9,412 a dollar during the first semester, and he said it could possibly end up at Rp 9,750 by the year's end.

He added that the rupiah would continue to come under pressure, considering the dollar's recent strengthening against other currencies and the ongoing negative sentiments arising from high oil prices.

"Internal factors will play against the rupiah as well, particularly as local dollar demand for imports will continue to be strong," Aburizal said.

"Added to this is the recently rising inflation rate and excess liquidity in the market."

Aburizal said oil would still be problematic for the local currency. The rupiah's position against the greenback has been undermined by state oil and gas firm PT Pertamina's huge dollar demand for financing the country's oil imports.

The government is coordinating with the central bank to supply Pertamina's dollar needs and has called on other state-owned enterprises to repatriate their dollar revenues.

Bank Indonesia is also continuing operations to mop up excess liquidity in the money market and has raised its benchmark interest rate to 8.25 percent to control inflation.

Indonesia's ability to defend the rupiah is, however, limited, as the country's exports are offset by rising import needs, which are eating their way into the country's foreign exchange reserves. Indonesia's foreign exchange reserves steadily declined to US$32.8 billion as of July, compared to $36 billion in the start of the year.

In its half-year report to the House of Representatives, the Ministry of Finance estimates that the rupiah's exchange rate will reach Rp 9,500 a dollar by the end of the year, a downward revision of its own estimate of Rp 9,300 in the recently revised 2005 state budget.

The rupiah closed lower at Rp 9,765 per dollar on Wednesday, as compared to Tuesday's Rp 9,745.