Tuesday, April 26, 2005

Rupiah toward 10000

Indonesian Rupiah is moving toward 10,000 per US dollar as it ended sharply down to Rp9745 yesterday. In fact, Central Bank rate to buy US dollar at Rp9145 and sell US dollars at Rp10145. Look at Bank International Indonesia’s rate to buy US$ at Rp9675 and sell at Rp9825.

The stock market also depressed. Jakarta Composite Stock Index (IHSG) dropped 28 points on Monday to reach its lowest level in the last three months at 1019.875.

Market reacted negatively Central Bank’s decision to raise interest rate from 7.53% to 7.7%. The policy is designed to curb inflation, core target of BI’s policy, where the bank set at 6% +/- 1%. The fact that market reacted negatively should push government to apply other measures. We can’t simply rely on BI to curb inflation and strengthen rupiah’s value in the long run. Rupiah is a system so we need systematic approach.

We could start from the simple supply-demand theory. Take a look at Pertamina, the state-owned oil and gas company. Starting last year, Indonesia is an oil net importer and as national output continues to drop at the time consumptions keep growing, our import will increase accordingly. Even though in the past we were net exporter in terms of barrels, in value, we actually imported higher value refinery products like gasoline or diesel and exported lower value crude oil. In this sector alone, we need more US dollars to import fuels than in the past, in other words, companies like Pertamina will spend more rupiahs to buy US dollars.

It’s happening to almost all companies with import-related costs, whether to buy raw materials, capital goods, or pay debts. Most of these are related to industrial and trade policy. The bottom line is new equity investment either foreign direct or domestic that brings in capital to boost national output.




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