Supplying Pertamina

Supplying Pertamina

With economic growth of over 6 percent and a budget deficit of
(in the worst case) of only 1 percent in 2005, Indonesia's
macroeconomic picture appears very good. I find the ongoing
pressure on the currency, in view of the latter, difficult to
understand. Further, Indonesia is less dependent on oil imports
than all other Asian countries with the exception of Brunei. Yet
the currencies of these other countries remain firm against the
dollar.

Indonesia remains a net exporter on the energy account,
including LNG, so the frequently aired view that it is oil
imports which are pressuring the economy makes little sense. This
assumes, of course, that all the dollar proceeds from energy
exports are being repatriated. The central bank should be in a
position to supply Pertamina directly with all the dollars it
needs using the proceeds from energy exports.

The forex market in Indonesia, again without Pertamina's open
market transactions, remains relatively small such that central
bank intervention should be highly effective in maintaining a
currency range, just as in Singapore for instance. Perhaps the
missing ingredient is confidence, which requires effective
communication with the markets from both the central bank and the
government.

Alternatively, and more disturbingly, it would be of concern
that undisclosed issues regarding the true situation of the
currency account and currency repatriation are at play.

PHILIP TOWNSEND, Sanur, Denpasar