Rupiah undervalued due to volatile politics
Rupiah undervalued due to volatile politics
JAKARTA (JP): The rupiah is undervalued due to lingering
volatility on the Indonesian political front, according to an
executive of a foreign hedge fund.
"Theoretically the rupiah is still undervalued. It should
range between Rp 6,500 and Rp 7,000 (against the dollar)," Calvin
Y. L. Ho, senior portfolio manager at Citicorp Investment Bank
Ltd. of Singapore, said on Wednesday.
Selling pressure on the Indonesian currency continues because
there are concerns with the inconsistency of the country's
policymakers, he said.
He acknowledged the pressure on the rupiah was also due to
high demand for the dollar, but said the major factor behind the
rupiah's weakness was uncertainty in the country's political
climate.
"Policymakers continue to have their games," he said, adding
that policies in Indonesia were based too much on political
considerations. "There is now a tendency (by policymakers) to
adopt populist policies."
The Indonesian currency fell to a six-month low against the
dollar on April 21 to Rp 8,005, from Rp 7,780 on the previous day
due to rumors of an alliance to oppose President Abdurrahman
Wahid.
The rupiah inched up on Wednesday to close at Rp 7,970 against
the dollar from Rp 8,045 on Tuesday.
Bank Indonesia Governor Sjahril Sabirin said on Monday the
domestic political situation was still weighing on the exchange
rate of the rupiah against the U.S. dollar.
Sjahril reiterated that once the political uncertainty
subsided, the rupiah should return to the 7,000 level or stronger
against the dollar.
"The market is still waiting for more favorable developments
in politics," he said following a meeting with senior economic
ministers.
Ho said investors were turned off if policies changed too
frequently over the medium term of investment.
He said Indonesia's fundamental indicators had showed
improvement in the past several months reflecting a growth in the
economy.
For exporters, the crisis made Indonesia very competitive not
only due to the depreciation of the rupiah, but also because of
the lower costs of labor and raw materials, he said. (udi)