Indonesia’s rupiah should reflect the current trend as declining exports put pressure on the exchange rate and bring it to a “new equilibrium,” a Finance Ministry official said.
A slowdown in the country’s exports will persist through the end of 2012 as shipments are vulnerable to low commodity prices, Bambang Brodjonegoro, head of fiscal policy at the ministry, said in an interview in Singapore yesterday.
“Of course there will be some pressure on the rupiah,” he said. “But I think we are ready with the so-called new equilibrium of rupiah because again, the rupiah will reflect our export situation.”
The rupiah has fallen more than 4 percent in 2012 as the faltering global recovery spurred outflows from emerging markets, restraining Bank Indonesia from adding to a February interest- rate cut. Falling prices of key commodities are hurting overseas sales by the country, the world’s No. 1 coal exporter and the largest producer of palm oil, contributing to a June trade deficit that was the widest since at least 2008.
The rupiah was little changed for the week, trading at 9,468 at 4:50 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg. It has dropped for six months, its longest losing streak since 1998.
If a certain rupiah rate is a better level, then Indonesia shouldn’t go against the trend, Brodjonegoro said. “The currency should adjust with the current trend,” he said.
The rupiah may strengthen to 9,250 per dollar by the end of 2012, and is forecast to be around 9,000 to 9,300 in 2013, Luky Alfirman, director of macro economy policy at Indonesia’s Finance Ministry, said in Singapore yesterday.
The central bank said in May it will increase the supply of dollars by offering dollar term deposits to alleviate pressure on the currency as overseas investors pulled funds from the nation’s assets. All but one of the 24 economists surveyed by Bloomberg News forecast Bank Indonesia will hold its benchmark reference rate at 5.75 percent next week.
While inflation that is under control would provide the central bank room to ease monetary policy to spur growth, lower interest rates may not be the solution, Brodjonegoro said. The country has room from the fiscal point of view for promoting growth, aside from monetary policy, he said.
“Cutting the rate might not solve the problem immediately,” he said. “We will be vulnerable whenever the global economy is slowing down, regardless of what fiscal policy or monetary policy is doing.”
Indonesia’s trade deficit in June was $1.32 billion, the statistics bureau said this week. Exports fell 16.4 percent in June from a year earlier, while imports rose 10.7 percent.
Among the 11-most widely traded Asian currencies tracked by Bloomberg, only the Indian rupee has done worse than the rupiah this year. Credit Suisse Group AG expects the currency to continue underperforming other Asian currencies in the months ahead amid a “rapidly deteriorating external account,” according to Robert Prior-Wandesforde, director of Asian economics in Singapore.
“While Bank Indonesia will no doubt try and limit the damage via foreign-exchange intervention, it has burnt the best part of $10 billion over the last couple of months in defending the currency,” he said in an Aug. 1 report. “Total foreign exchange reserves still amount to $106 billion, but clearly the central bank can’t carry on intervening at the recent rate.”
The widening trade deficit is a consequence of rising imports amid an increase in investments, Alfirman said in a separate interview with Bloomberg yesterday. While officials are concerned about the trade gap, to “some extent it’s still OK,” he said. Indonesia’s growth is still “robust” and “weathering well” against the global crisis, Perry Warjiyo, director of economic research and monetary policy at Bank Indonesia, said in Singapore yesterday.
Growth in Southeast Asia’s largest economy probably exceeded 6 percent for a seventh quarter even as it’s estimated to slow to 6.1 percent, according to the median estimate of 24 economists surveyed by Bloomberg News ahead of the Aug. 6 report on second-quarter performance. Alfirman said the finance ministry forecasts second-quarter growth of 6.3 percent to 6.4 percent, and 2012 expansion of as much as 6.5 percent.
The government is nearing completion of a so-called Viability Gap Fund that will provide cash to companies to defray the construction costs for public-private partnership projects, Brodjonegoro said in a speech yesterday. The amount available under the fund hasn’t been decided yet, he said.
“The idea is simply to increase the viability of PPP projects,” he said. While projects such as power generation or toll roads may not need such support, those involving water may need the funds as tariffs are decided by local governments and not market prices, he said.