BI'S CALL FOR DOLLAR SELLING A GOOD OR BAD SIGNAL?

By Andi Abdussalam

        Jakarta, Nov 19 (ANTARA) - Bank Indonesia (BI)'s appeal to the public to sell their dollars in order to help offset the rupiah depreciation may prove to be counterproductive and encourage market players to adversely hunt the greenback, observers say.

        BI made the call so that those keeping dollars would enjoy a gain from the margin as now the rupiah has reached its lowest level of Rp12,000 per US dollar.

        "The people will not sell their dollar only because they could already enjoy a high gain. The BI call could adversely lead people to keep their dollars and wait for higher gains," Dradjad Wibowo of Commission XI of the House of Repesentatives (DPR) which deals with financial affairs, said here on Wednesday.

        He said that the BI statement could serve as a signal that BI's role as monetary authority began to weaken. "In a war there is no room for weakness," Wibowo said

        Dradjad Wibowo's opinion was supported by Bambang Soesatyo of the Indonesian Chamber of Commerce and Industry (Kadin).

        "We could understand the BI appeal which was aimed at creating mutual benefits among the dollar keepers and the BI because it could increase the central bank's reserves but it was announced not in the correct time," he said

        He said that Bank Indonesia (BI)'s call on the public to release their US dollars was a bad signal and counterproductive because it would trigger speculative buying of the currency.

        "This afternoon, capital owners increased their dollar hunting activity in anticipation of the worst impact of the rupiah's depreciation," Bambang Soesatyo said.

        The rupiah fell to Rp12,000 per US dollar on Wednesday afternoon after perching at a level of between Rp11,500 and Rp11,900 for a while, following mounting market pressure.

        The rupiah in the Jakarta interbank spot market traded at Rp12,000/12,028 per US dollar, down 75 points from Rp11,925/12,100 in the market's closing a day earlier.

        The Kadin official said that BI, in its capacity as the central bank, should not make a statement calling on the public to release their dollars because the local and international markets were facing US dollar scarcities.

        The BI call could be construed that the present rupiah exchange rate at between Rp11,000 and Rp12,000 against the greenback had reached an equilibrium point in the current financial crisis.

        "This means that now is the time for dollar keepers to take a profit because the rupiah depreciation has already reached its peak. But the fact explains to us that the BI call is an indication that BI has panicked because its foreign exchange reserves began to be running short," he added.

        BI's foreign exchange reserves have dropped to US$50.5 billion from US$60 billion in July after it has intervened in the market to neutralize the drop of the rupiah.

        Economic observer Tony A Prasetyantono said the BI call would not be effective to withstand the downturn in the rupiah value.

        "The appeal is not effective but as BI governor, Boediono has the moral obligation to ask the people to sell their dollars," he said.

        BI at present is facing a disadvantageous situation because its efforts to carry out continuous market intervention would deplete its foreign exchange reserves which in the present level had been on the brink of a critical condition.

        He said that what was needed now was not a monetary maneuver but a blanket guarantee. "This would be effective in offsetting the rupiah's fall," Prasetyantono said.

        In the meantime, state-owned BNI chief economist A Tony Prasetyantono said the BI call was actually a step to influence the market conditions.

        "However, I am convinced that BI was aware of the ineffectiveness of its call. However, the BI governor must do it because he already had tried other ways but the rupiah still continued to weaken," he said.

        BI has taken several steps such as raising its benchmark interest rate and carrying out market intervention at the risk of its declining foreign exchange reserves.

        However, Bambang Soesatyo of Kadin hoped that BI would lower its benchmark interest rate (BI Rate) so that the existing commercial banks would prepare to lower their interest rates to boost the provision of working capital credits and ignite investment.

        Besides, BI needs government assistance in the form of a blanket guarantee. Unluckily, the government is still refusing to provide it for banks' deposits, he added.

        Bank BRI Director Sulaiman Arif Arianto said meanwhile that the BI call was an appropriate step, though it was actually ineffective.

        "In the current situation BI has taken the correct step because it serves not only as a rigid monetary authority but also as an institution trying its best to educate the people," he said.(T.A014/HNG/A/H-YH)   (T.A014/A/A014/A/H-YH) 20-11-2008 00:01:30