RUPIAH DEPRECIATION EXPECTED TO BOOST EXPORTS

By Andi Abdussalam

Jakarta, July 19 (Antara) - The depreciation of the rupiah of late which has exceeded Rp10,000 against the Greenback is expected to reduce imports and boost exports amid pressures on Indonesia's capital balance that affects current account transactions.          Finance Minister Chatib Basri said pressures on capital balance would still be taking place and it would overall affect the current transaction deficit, yet the government was making its efforts to reduce pressures on balance of current transactions.          One of the efforts made by the government in reducing the deficit of the current transaction is to reduce its fuel imports and encourage exports.          "What needs to be watched out is the capital balance. But we have settled the problem of fuels and oil and gas imports have been declining. The next step that should be made  is to boost exports," the minister said.          The rupiah exchange value on Friday morning reached Rp10,140, weakening from Rp10,060 at the closing on Thursday.          The finance minister said that the rupiah depreciation had been taking place in  the past several months due to pressures on  the capital balance.  "This happens after the Fed governor, Ben Bernanke, says he is going to scaleback its quantitative easing policy. So the main issue is more on capital balance," Chatib said.            He said that the pressures on the capital balance happened due to outflowing of debt security portfolio and share funds because investors withdrew their investments from bond instruments.          The minister explained the global phenomenon also took place in all developing countries and almost all currencies underwent depreciation against the US dollar currency. But the depreciation of the rupiah was much lower than that of other currencies.          "Capital outflow happens because of external factors but the rupiah depreciation is the lowest one compared with those of others such as that of won of Korea," said Chatib.          However the depreciation is good for boosting exports. "What is important is that we have tackled fuel problems and we encouraging exports," the finance minister added.          According to Budi Gunadi Sadikin, the president director of publicly listed Bank Mandiri, Bank Indonesia (BI/the central bank) is making adjustments on the exchange rates with the rupiah slightly weakening in an effort to stimulate exports and to reduce the country's current account deficit.          "If we look at it, we could observe that the central bank has since Monday begun seeking new equilibrium with the exchange rates, letting the rupiah weak so that exports could be encouraged and imports could be discouraged. Import becomes expensive and export will be advantageous," President Director of publicly listed Bank Mandiri, Budi Gunadi Sadikin, said here Wednesday night.          Based on the Jakarta Interbank Spot Dollar Rate (JISDOR), the rupiah exchange rate has continued to weaken gradually. As of July 1, 2013, the exchange rate of the rupiah was Rp9,934 and until July 15, 2013 it had reached Rp10,000. On Friday, it was Rp10,140 against the US dollar.          "The US dollar currency is strengthening against most of the world currencies in the face of a statement of the Federal Reserves governor, Ben Bernanke,  on the United States financial stimulus," Ariston Tjendra, analyst of Monex Investindo Futures, said meanwhile.          According to Budi, BI is willing to create a new equilibrium between exports and imports. Now the country is suffering from a current account deficit because imports are getting higher. To find a new equilibrium, the central bank is gradually adjusting the rupiah exchange rate," said Budi.          He said that the current account transaction deficit was one of the factors that caused turmoil in the rupiah exchange value, but with the rise of subsidized fuel oil last June the deficit in the current account could be reduced.          He said that the same conditions once took place in 2005 and in 2008 when the government raised subsidized fuel oils. In a period of one year the transaction deficit was successfully be improved.          "So, experience shows that Indonesia's current account deficit is caused by fuel oil subsidy. If the gap of prices between that at home and that overseas is too wide and import becomes higher, then the deficit will take place. The deficit, if left unchecked, will cause the value of the rupiah exchange rate to continue to weaken," said Budi.          In the meantime,   the rupiah on Friday morning weakened to Rp10,140 per US$1 over the lack of positive centiment in the domestic money market. The rupiah interbank transaction lost 95 points to Rp10,140  from Rp10,045.          "The value of the rupiah currency against the US dollar continue to weaken in line with the expectation of slowing Indonesian economic growth," Chief Researcher of  Trust Securities, Reza Priyambada, said on Friday.          He explained that the statement of a government official that the Rp10,000 level was not a psylogical point had created assumption that rupiah would still continue to weaken.          "Apart from that, BI¿s statement that inflation in July could be higher has also been negatively responded to by the market because the growth of the domestic economy will still be burdened," Reza said.          In the meantime, on Friday evening, the value of the rupiah in the interbank transaction, had not yet moved significantly but was stagnant at Rp10,045.          Money market observer Ruly Nova of the Bank Perhimpunan Saudara said that the BI step to issue a foreign exchange (FX)  Swap instrument had successfully contained the rupiah from depreciation further against the Greenback.          "BI was able to contain the rupiah from depreciating further. BI has a new instrument to maintain the value of the  rupiah," he said.          President Director of Bank Mandiri, Budi Gunadi called on the market players on Thursday to not worry about the rupiah depreciation that had surpassed Rp10,000 per US dollar because dollar supply is abundant in the market.          He said scarcity had happened because some businessmen had kept the dollars to wait for further rupiah depreciation for bigger profit.          "It is not that the rupiah has plunged below Rp10,000 against the US dollar five times so far. Later when the situation is normal again it will return to a level of Rp9,000 or Rp8,000. So, there is nothing special about it," he said during a fast-breaking gathering with journalists.          Budi admitted that in the past few years the rupiah exchange rate against the US dollar had never reached above Rp10,000 but he said one must also remember that when the government raised the price of oil in 2008 the rupiah exchange rate even reached Rp12,000 per dollar.          "We were not surprised because the rupiah had often surpassed that level then. But now we have been surprised to see it surpassing Rp10,000 per dollar while in fact it is not special," he said.          Budi said with the rupiah exchange rate now surpassing Rp10,000 he hoped those who had kept US dollars would start selling them.          "Bank Indonesia would make the rupiah to appreciate slowly and we as a market maker or big trader have been asked to help dollar transactions to be smooth again to make the market calm again," he said.***3*** (T.A014/b003/B003)