Rupiah weakness hurting manufacturing: Kadin

JAKARTA (JP): Chairman of the Indonesian Chamber of Commerce and Industry (Kadin) Aburizal Bakrie said on Monday that if the rupiah continued to stay at about Rp 9,000 per U.S. dollar, the country's manufacturing sector would have to cut production in a bid to halt losses.

Aburizal said that the ideal exchange rate level for the manufacturing sector was about Rp 7,000 per dollar.

He explained that a weak rupiah would result in higher costs of imported raw materials, which could not be automatically transferred to local customers as purchasing power had been reduced by the more than two-year economic crisis.

"The drop in the rupiah to about Rp 9,000 is really hurting the business sector," he said.

Aburizal was speaking to reporters at the House of Representatives. He was scheduled to meet with House Commission IX for the state budget and banking, but the hearing was delayed as only a number of the commission members showed up.

The rupiah has been badly hit recently, particularly due to domestic security and political uncertainty ahead of a key August General Session of the People's Consultative Assembly (MPR), the country's highest legislative body.

Many fear that the House and MPR members will use the annual meeting to impeach the President, who has in recent months been engaged in a tug of a war with the legislators.

The rupiah ended stronger at Rp 9,315 per U.S. dollar late on Monday, compared to Rp 9,320 on Friday. This is much lower than the government's Rp 7,000 target for this year.

Coordinating Minister for the Economy, Finance and Industry Kwik Kian Gie said late last week that the government and Bank Indonesia would not take any special action to prop up the rupiah because the current weakness was only temporary and due to "noneconomic factors".

"If we take action, it will only cause the market to think that there's something serious going on," he said.

Kwik was confident that the rupiah would be stronger once current political problems had been resolved, as the country's economic fundamentals had improved.

Aburizal also urged the House to immediately take measures to ensure legal certainty for investors to do business in the country.

He said that the illegal seizure of company assets, including land, by the people could prompt investors to withdraw from the country.

"There has to be an industrial peace," he said.

He said that legal certainty and the security condition were crucial to reviving business confidence in the country and to help strengthen the local currency.

Aburizal was optimistic that if domestic social and political uncertainty subsided, the rupiah would strengthen again.

He said that the country's key economic factors were positive enough to support a stronger exchange rate of the rupiah.

He expected the rupiah to strengthen after August's MPR session.

Elsewhere, Aburizal also said that the Indonesian Bank Restructuring Agency (IBRA) must press ahead with its asset disposal program to help revive investor confidence in the economy.

"IBRA must speed up its asset sale program," he said, adding that the government should not be reluctant to sell at a discount.

He added that a resolution to the country's massive corporate sector overseas debt was crucial to rebuilding confidence.

He also said that the government's economics team must be well coordinated in taking economic measures to revive confidence, particularly among foreign investors. (rei)