Rupiah to stabilize at current level until year-end: Burhanuddin

The Jakarta Post, Jakarta

The central bank said the rupiah, which has failed to take advantage of the dollar's fall against other currencies so far, would stabilize at the current level at least until the year-end, as demand for dollars would remain high.

The strong dollar demand would still come from state oil and gas firm PT Pertamina, importers and other firms for their year- end debt payments, restricting the rupiah's chances of strengthening against the dollar, Bank Indonesia Governor Burhanuddin Abdullah said on Wednesday.

"Over the past couple of months, the rupiah has been undervalued, which actually should have provided room to strengthen. It did not happen due to a strong dollar demand in the domestic market.

"It has somewhat stabilized at around 9,000 (per dollar), which I think will continue until the end of the year," Burhanuddin told lawmakers during a hearing with House of Representatives Commission XI on financial affairs.

Earlier reports said that Pertamina would need to spend about US$1 billion per month to import crude oil.

Burhanuddin was responding to questions as to why the local unit had yet to gain from the dollar's decline as enjoyed by other currencies.

Analysts have attributed the dollar's decline to the twin deficits suffered by the U.S., referring to the country's huge trade and current account deficits.

Led by the euro and Japanese yen, many currencies have been gaining ground against the dollar, although that was not the case with the rupiah.

The local currency weakened to 9,185 per dollar on Wednesday.

Aslim Tadjuddin, Bank Indonesia deputy governor for monetary affairs, echoed Burhanuddin's views, saying that the rupiah would only strengthen, even to a level below 9,000 early next year.

"Probably around January or February," Aslim said, without elaborating.

According to an economic assessment paper presented by Bank Indonesia at the hearing, it was revealed that the local unit had averaged 8,910 per dollar in the January-November period against the dollar, or 3.69 percent weaker than the average rate of the rupiah the year before.

The government targets an average exchange rate of 8,900 per dollar in the current 2004 state budget.

A strong rupiah would help ease inflationary pressure at home as it makes imported goods cheaper.

"What's more important for the currency is stability, as it provides certainty for many parties, including the business community, to draw up their business plans," said Burhanuddin.

The rupiah is targeted to average 8,600 per dollar next year, as stated in the 2005 state budget.