SBY's policy do little for rupiah

SBY's policy do little for rupiah

The Jakarta Post, Jakarta

President Susilo Bambang Yudhoyono's four-policy package has done
little to help defend the rupiah, as analysts have criticized it
as not including measures that had been expected by the market.

Following the President's anticlimactic announcement late on
Wednesday -- on energy, monetary, fiscal and investment policies
-- the rupiah ended slightly up at Rp 10,225 a dollar on
Thursday, from its Rp 10,250 closing the previous day.

The currency had, however, plunged to Rp 10,800 during midday
trading, as the market reflected disenchantment over Susilo's
remarks.

But the rupiah managed to slowly regain strength from Bank
Indonesia (BI) investments in the bond market.

The Jakarta Stock Exchange mirrored the forex market's
disappointment in its composite index, opening its trading 2.02
percent lower at 1,028.822 points, before strengthening a bit to
close the day 1.03 percent lower at 1,039.230 points.

Markets were closed on Friday in observance of the Ascension
Day of the Prophet Muhammad.

The central bank became something of a savior to the rupiah
again as it absorbed Rp 10.85 trillion in excess liquidity
through its 10.82 percent one-day overnight rate offered to
commercial banks. The BI also absorbed on Wednesday Rp 5.81
trillion through its 9.51 percent-rated one-month promissory
notes.

The rupiah also got a boost from investors supplying the
market with dollars after their recent buying up of the
government's rupiah-denominated bonds.

The minister of finance sold Rp 2 trillion worth of bonds on
Tuesday, despite Indonesia's debt instruments taking a recent
beating due to the rupiah's weakness and rising interest rates.

The rupiah has weakened by more than 10 percent over the past
month alone, as soaring oil prices push the country's oil imports
for its fuel subsidies higher, burdening the state budget to the
brink of fiscal instability.

Standard Chartered chief economist Fauzi Ichsan said the
market had actually expected the government to give a credible
fiscal policy package that included a time line for fuel subsidy
reductions and a state enterprise privatization program.

"For the time being, the markets are likely to give the
government the benefit of the doubt that the finance ministry and
the Office of the State Minister of State Enterprises will come
up with more concrete measures," he said.

"If they don't, the rupiah is likely to be under pressures
again, which will the force BI to increase rates more
aggressively than necessary.

Bank International Indonesia (BII) chief economist Ferry
Latuhihin also warned that the situation could worsen.

"Believe it or not, once Standard and Poor's and Moody's
downgrade our sovereign rating, the dollar will go up to Rp
12,000, the index down to 800 and the bond market will crash," he
said. "The bubble is waiting to burst."

Standard and Poor's, an international ratings agency, indeed
downgraded the country's rating outlook on Friday from positive
to stable.

The agency said it had affirmed its B+ long-term foreign and
its BB long-term local currency sovereign credit ratings on
Indonesia as well as affirming its B short-term sovereign credit
ratings.