Rupiah still on shaky footing against dollar

Aditya Suharmoko , The Jakarta Post , Jakarta | Fri, 11/21/2008 2:14 PM | Business

The rupiah continued its fall against the U.S. dollar Thursday as dollar demand rose at a time when many preferred the greenback to a lack of confidence in the local currency.

The rupiah slid to 12,475 per dollar, its weakest level since August 1998, before trading at 12,300 at 5:10 p.m. here in Jakarta, according to Bloomberg. It was traded at 12,100 per dollar at 5:02 p.m. on Wednesday.

The currency has dropped by more than 20 percent in the past month.

Currency analyst Farial Anwar said the rupiah fell as foreign and local investors were losing confidence in the rupiah.

"They who hold money may choose to buy dollars. Or perhaps they think it is more beneficial to hold dollars."

Finance Minister Sri Mulyani Indrawati says the rupiah has devalued as people have held onto dollars due to a lack of confidence in other currencies.

"The problem now is not a shortage of liquidity (in dollars), but it reflects instead that there are people who do not want to trade because of a lack of confidence (in other currencies)."

The central bank has said it will maintain the rupiah at a "realistic level".

As of Oct. 31, foreign exchange reserves stood at $50.58 billion, down from $57.11 billion a month earlier, as the central bank has been active in supporting the rupiah to prevent it from a further or deeper fall.

The central bank has also introduced a regulation to limit the purchase of foreign currencies in the equivalent of above $100,000 through spot, forward, or derivative transactions for Indonesian citizens, or for firms, by requiring that they provide underlying transactions and a tax file number.

Foreign parties, meanwhile, can purchase that amount of dollars through spot transactions only, subject to supplying the justifying documentation.

Farial expects the central bank to impose a tight monitoring on the implementation of the regulation to avoid that currency speculators might forge documents to substantiate underlying transactions.

"The central bank needs to control the regulation and sanction those violating it."

Exporters should also bring their dollars into Indonesia, instead of parking them in other countries, he added. "Even state-run companies have been asked by the government to bring their dollars here."

Businesses however said the rupiah decline had not posed a threat to businesses as they had calculated the rupiah at about 12,000 per dollar for imports.

"(The rupiah decline) has been predicted," said Sofjan Wanandi, the chairman of the Indonesian Employers Association (Apindo), adding however that businesses would be severely hit if the rupiah reached 15,000 per dollar.

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