Supports for rupiah remain unclear

The Jakarta Post, Jakarta

The much-awaited government policy changes on Wednesday to help solidify the rupiah turned out to be somewhat of an anticlimax as President Susilo Bambang Yudhoyono announced that the government would wait "until after October" to hike domestic fuel prices.

In a televised speech, Susilo said the government would raise fuel prices only after the completion of its September-October registration of the poor in the country, who are eligible for receiving assistance funds to offset possible economic impacts from the hike.

"The government has finally decided that, whatever happens, we must raise fuel prices while at the same time cutting fuel subsidies," he said. "The subsidies will be gradually reduced and I want to make sure that the assistance funds reach the intended recipients, be they through bank transfers, reimbursements or hard cash."

The rupiah closed up to Rp 10,250 per dollar on Wednesday, according to Bloomberg, up 2.6 percent from Rp 10,525 close on the previous day.

The rupiah was rescued from a 10-day plunge on Tuesday as the central bank tightened policies to support the currency, including an ample hike of its benchmark BI Rate to 9.5 percent and an increase in the minimum reserve that banks must maintain.

The rupiah's slide to a four-year low has been attributed to soaring oil prices, making Indonesia's oil imports and fuel subsidies that much more costly and burdening the state budget. Analysts far and wide have intensified their calls for the government to immediately increase domestic fuel prices and cut the subsidy.

Susilo said he understood the criticism over the government's oil price assumption for next year's budget, which stands at US$40 a barrel while oil prices are currently at $70 a barrel.

"I personally think that $55 is more realistic," he said.

Susilo also said the government would speed up the contract talks for an oil refinery in Central Java's Cepu field, the construction of an oil refinery in Jeruk, East Java -- which will boost oil output to 1.3 million barrels per day -- as well as the gas refinery in Tangguh, Papua.

The government will do its utmost to combat fuel smuggling, of which some of the cases, Susilo said, involved officials from state oil and gas firm PT Pertamina.

Shortly before the announcement, Indonesian Chamber of Commerce and Industry (Kadin) chairman Mohamad S. Hidayat said "there were voices during the Cabinet meeting on Tuesday night suggesting a reduction in the fuel subsidy starting in September."

"But the President eventually decided to start reducing it in November, as he wants to wait for the result of the survey on the country's poor," he said.

Standard Chartered economist Fauzi Ichsan said the President's announcement would be inadequate without further follow-ups.

"Although the announcement shows that the government has realized fuel subsidies are the root of the problem, it still needs to provide a more detailed action plan," he said.