Indonesia plans 'Response Policy' to boost rupiah

Indonesian rupiah are displayed for a photograph in Jakarta, Aug. 15, 2007.
Photographer: Dimas Ardian/Bloomberg News
The Global Financial storm has been hitting emerging markets. After rolling across Argentina, Iceland, Hungary, Ukraine, Belarus, Pakistan, South Korea, Persian Gulf and now reaches Indonesia. (see on the related posts).

According to Bloomberg, Indonesia's President Susilo Bambang Yudhoyono said the government will announce a "response policy" tonight to stem a slide in the nation's currency.

The currency fell as much as 8.7 percent before recovering to trade down 0.9 percent at 11,050 against the dollar.

"We cannot always solve this through intervention," Yudhoyono told reporters in Jakarta today, referring to the central bank buying the local currency. "If the decline is because of fundamental reasons, what we must solve is the fundamental reasons."

Indonesian stocks are headed for their worst yearly performance on record and the country's bonds are the weakest performer in Asia as a global credit crisis prompts investors to flee from the nation. Indonesia was one of three countries in the region to seek a bailout from the International Monetary Fund during the Asian financial crisis a decade ago.

An employee piles bundles of rupiah banknotes
in a state bank in Jakarta October 28, 2008.
Reuters/Dadang Tri
"The most effective measure would be" the central bank selling dollars, said Aldian Taloputra, an economist at PT Mandiri Sekuritas in Jakarta. ``But this problem is of global scale, so what the government could do is to minimize the impact of the outflow".

The Jakarta Composite index has declined 59 percent this year. Government bonds have dropped 17 percent, according to data from HSBC Holdings Plc, the worst among 10 Asian nations. Overseas holding of bonds have declined 11 percent from a record in August.

The rupiah is declining even as the government said it expects the budget deficit to narrow to 1 percent of gross domestic product, from its previous forecast of 1.3 percent, on declining oil prices. Southeast Asia's biggest economy is forecast by the government to expand between 5.5 percent and 6 percent next year.

The government is also considering lowering subsidized fuel prices after crude oil futures fell to the lowest since May 2007, with the contract for December delivery dropping 93 cents to close at $63.22 a barrel in New York yesterday.

Indonesia's central bank had $57.1 billion of reserves as of Sept. 26. The nation paid back its last loan from the IMF in 2005, four years before schedule.

Related Posts :

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4. US Credit Crunch Hits South Korea
5. Ukraine asks for IMF bailouts along with Hungary and Belarus
6. IMF loans US $2 bln to Iceland
7. Four Currency Crises: Hungary, Iceland, Pakistan, and Argentina
8. Swiss banking collapse is going to be one biggest domino to fall
9. Iceland receives $6 bln rescue package
10. Will Hungary be the next Iceland?
11. Netherlands Injects ING $13.4 Billion, China's Economic Growth Slowed, South Korea Guarantees Foreign Deposits
12. Iceland Meltdowns

Sources :

Indonesia Plans `Response Policy' to Boost Currency (Update2), October 28, 2008 04:17 EDT

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