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Kalla: 'Rupiah's strength is a concern' JAKARTA - The Indonesian rupiah's strength is a concern and businesses in Southeast Asia's biggest economy may feel more comfortable if it weakened to about 9,500 against the dollar, Vice President Jusuf Kalla said.

The level favored by Kalla is about 4 percent lower than the rupiah's close yesterday at 9,139 to the dollar. The measure traded at 9,141 at 11:23 a.m. in Jakarta today and has risen 15 percent since plunging to a four-year low on Aug. 30, 2005, the most among the 15 Asia-Pacific currencies tracked by Bloomberg.

"There are concerns because if we are too strong and there are short-term investments in Indonesia,'' investors could sell the currency, making it volatile, Kalla said in an interview yesterday. "Of course it's the central bank's policy,'' and the government can't interfere.

A strong rupiah makes Indonesian exports of commodities including palm oil and rubber more expensive overseas. The currency recovered after the government more than doubled fuel prices in October last year and the central bank raised its key interest rate six times in the five months to December to stem inflation. Consumer spending slumped, curbing economic growth.

Bank Indonesia has cut its benchmark rate six times this year, lowering it to 10.25 percent from a three-year high of 12.75 percent in December, to revive consumption. The rupiah has declined 4.4 percent since the central bank began cutting the rate on May 9, trimming its gains this year to 7.5 percent.

`Rupiah Will Depreciate'

"We also expect next year the rupiah will depreciate,'' said Helmi Arman, an economist with PT Bahana Securities in Jakarta, who expects the Indonesian currency to fall to 9,600 against the dollar by end of 2007. "Currently the support has been due to slow growth in imports, whereas next year, if the economy picks up, then the imports are bound to rise.''

The rupiah's gain has helped curb inflation. Consumer prices in Indonesia rose at their slowest pace in two years in October, allowing the central bank to cut its policy rate. Still, Indonesia's benchmark interest rate is the highest among 14 Asian nations monitored by Bloomberg.

Indonesia's economy grew 5.5 percent in the three months ended Sept. 30 from a year earlier, the fastest in five quarters, as exports rose and lower borrowing costs fueled consumption.

Bank Indonesia's Senior Deputy Governor Miranda Goeltom said Sept. 19 the rupiah trading in a range of 9,000 to 9,500 against the dollar will help boost economic growth by as much as 6.5 percent next year. The economy may grow 5.6 percent this year, matching the gain in 2005, Finance Minister Sri Mulyani Indrawati has said.

Poverty reduction

The government wants to help boost growth by attracting investment instead of short-term capital flows, Kalla said. "Reduction of poverty, unemployment all depend on economic growth and overseas investment,'' Kalla, 64, said in Jakarta. The government needs to focus on policy implementation and proper utilization of funds.

President Susilo Bambang Yudhoyono's government wants to attract $22 billion of investment annually to pull 39.05 million people out of poverty and boost employment. Last year, Indonesia received $12.1 billion in foreign investment. Overseas investment in government bonds, which reached a record 58.1 trillion rupiah ($6.3 billion) in August, has started to slow. Overseas investors sold 3.2 trillion rupiah of bonds in September, according to central bank data.


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Posted in Economy @ 24 November 2006 02:32 CET by Jeroen · 'Blog' RSS feed · permalink






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