Susilo steps in to ease panic over rupiah

Rendi A. Witular and Urip Hudiono, The Jakarta Post, Jakarta

President Susilo Bambang Yudhoyono made an impromptu visit to the Jakarta Stock Exchange (JSX) on Wednesday to encourage the business community to have confidence in the country's economy, following a recent slump in local currency and stocks.

Speaking when closing the day's trading, Susilo urged the business community not to panic in response to the rupiah's recent slide against the dollar as the country's economy remained strong.

"I would like to affirm the government's serious efforts in addressing the currency woes. Don't panic because our foreign exchange reserve is still sufficient and our underlying economy is strong," he said.

According to Susilo, the country's overseas currency reserve currently stands at some US$35 billion.

The rupiah continued its recovery to end higher by 1.2 percent against the U.S. dollar on Wednesday to Rp 9,573 from Rp 9,688 on Tuesday and from its three-year low of Rp 9,750 on Monday.

The extended recovery is supported by the central bank's decision to unload its dollar reserves to prevent the local note from diving further and to provide a number of new monetary instruments aimed at preventing the rupiah from being speculated.

Tracking the recovery of the rupiah, the Jakarta stock market also ended slightly higher. The Jakarta Composite Index closed up 0.450 points to 1032.218, with a transaction volume of 1.25 billion shares valued at Rp 1.4 trillion ($145 million).

Susilo said the government would work closely with Bank Indonesia (BI) to ensure that the monetary condition remained stable, with efforts from the government's side to control the massive buying of dollars by a number of state enterprises.

"The government has instructed all state enterprises to coordinate with BI before buying the greenback in a large amount to prevent a shock in the market as well as to reduce speculation activities," he said.

He acknowledged that one of the main culprits in contributing to the decline in the rupiah was the uncontrollable massive buying of dollars by state oil and gas company PT Pertamina aimed at importing fuel for the domestic market.

State Minister of State Enterprises Sugiharto said the government would from now on prohibit Pertamina from directly buying dollars from the spot market to avoid volatility in the rupiah and the triggering of speculation activities.

He said in the future Pertamina could only buy dollars from BI after comprehensive coordination with the monetary authority and his ministry.

"We are currently discussing with BI the technical procedures for state enterprises in buying dollars," he said, adding that Pertamina would need $50 million each day to finance the import of fuel.

Sugiharto also said the ministry was still discussing with the central bank the possibility of Pertamina directly acquiring its foreign exchange revenue from the export of oil and gas.

The move is made to help maintain Pertamina's foreign currency cash flow for importing fuel.

At present, Pertamina has to hand over its oil export revenue directly to the central bank.

Susilo also voiced his optimism that the country's inflation rate would remain on track this year because the recent high inflation pressure was mainly a reaction to the fuel price increase.

"Inflation is still under control. In the coming months, we have estimated that inflationary pressure will ease and economic growth will remain on track," he said.