Rupiah falls, market waits for policies to take effect

Aditya Suharmoko , The Jakarta Post , Jakarta | Thu, 10/30/2008 7:21 AM | Headlines

The rupiah continued its slide Wednesday against the U.S. dollar, with the market unresponsive to the government’s newly launched set of fiscal policies, waiting for them to take effect.

The rupiah fell to Rp 11,025 per dollar at 5:15 p.m. in Jakarta, from Rp 10,900 at 4:19 p.m. on Tuesday, Bloomberg reported.

“The policies will take time (to turn market sentiment around), but they did spark positive sentiment early on,” said Purbaya Yudhi Sadewa, Danareksa Research Institute head of research.

“I think the (government’s) moves are good; we’ll just wait for the implementation.”

During morning trading, the rupiah climbed to Rp 10,400 per dollar, but lost steam later on.
“The rupiah can’t rebound in a day. There’s no one-day cure for (market) sentiment,” Purbaya said.

He added the government should implement its policies, including buying back government bonds and ordering state-run companies to place their foreign reserves — including export proceeds — in local banks, to help boost the rupiah.

“If the implementation works, the sentiment will change,” he said, calling the 10 policies “far more realistic” than the 10 unveiled by President Susilo Bambang Yudhoyono on Oct. 6.

The earlier policies included maintaining economic growth at above 6 percent and doing business as usual, which economists deemed unrealistic and unapplicable.

The new policies were announced Tuesday by the government, in a bid to bolster foreign reserves and prop up the rupiah.

They include the exercising of currency swap agreements with the central banks of China, South Korea and Japan, if needed.

Purbaya said if the government and the central bank started to buy back government bonds, market sentiment would rise.

Currency analyst Farial Anwar, however, said the policies were good but did not address the main problems.

“There are two problems: Free capital flow and free currency traders,” he said. “The government is supposed to limit the flow of hot money entering the country and the sales of dollars.”

By adopting a capital control, Farial went on, the government could manage the flow of investment-oriented money, or hot money, into and out of Indonesia.

Source : www.thejakartapost.com