Supports for rupiah remain unclear

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.