B

ank Indonesia (BI) has dismissed concerns over the sharp drop in the Indonesian currency during the past few months, saying that the weak rupiah would help local manufacturers increase their exports.

The central bank'€™s Senior Deputy Governor, Mirza Adityaswara, said in Jakarta on Tuesday that the rupiah at its current level of around 11,500 per US dollar was good for the country'€™s exporters.

'€œThe rupiah exchange rate at 11,500 per dollar is enough to cope with the widening current-account deficit,'€ he said at a seminar on the weakening of Indonesia'€™s economy. According to him, an increase in exports would significantly narrow the current-account deficit.

He said that at such a level, Indonesia'€™s goods would be more competitive in overseas'€™ markets. He added that the fall in the rupiah provided an opportunity for local industry players to raise their exports.

The rupiah dropped to its weakest level since March 2009 on Tuesday, after the government missed its fund-raising target at a domestic dollar debt sale amid concerns that the US Federal Reserve would bring forward a plan to cut stimulus, Bloomberg reported.

The government raised US$190 million from the bond sale on Monday, short of its $450 million goal, said Robert Pakpahan, director general at the debt management office. Global funds sold a net $361 million of Indonesian stocks this month as of Monday, while the benchmark index suffered its greatest decline since September on Tuesday.

The rupiah fell 0.2 percent to 11,763 per dollar as of 4:16 p.m. in Jakarta on Tuesday, having earlier in the day touched 11,798, its lowest level since March 20, 2009. One-month non-deliverable forwards dropped 0.2 percent to 11,617, 1.3 percent stronger than the onshore spot rate.

A fixing used to settle the forwards was set at 11,495 per dollar on Tuesday, the same as Monday, according to the Association of Banks in Singapore. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, lost six basis points, or 0.06 of a percentage point, to 14.29 percent.

The rupiah, which traded at 9,950 per dollar in January this year, has been underselling pressure for the past few months due to heavy outflows of foreign funds from the country'€™s stock and debt markets and the worsening of the country'€™s economic indicators, such as the fall in exports and surging inflation.

The Indonesian currency has lost about 15 percent this year.

Indonesia'€™s exports have remained weak in the second half of this year. According to Central Statistics Agency (BPS) data, the country'€™s exports totaled $14.81 billion in September, nearly 7 percent lower than during the same month last year.

Enny Sri Hartati, executive director of the Institute for Development of Economics and Finance (Indef), said the weak rupiah would be of little help in increasing exports.

'€œThe weakening of the rupiah may increase exports, but that will have little impact,'€ she said.

She added that the rupiah'€™s depreciation could provide greater revenues for businessmen, as they sold their goods in the currency. However, the effect would only provide a short-term respite; it would not solve the state'€™s current-account deficit, she said.

According to her, the weak rupiah would instead hurt manufacturing, which still relied on imported raw materials. As a result, it may lead to a further widening of the current-account deficit.

The government, she added, should create fiscal policy to address the problems related to the widening deficit, such as providing fiscal stimulus for renewable energy, focusing on downstream industries and improving agricultural productivity. With such policies, she explained, imports '€” especially oil '€” could be reduced.

The yen strengthened for the first time in four days against the dollar after minutes from the Bank of Japan'€™s (BOJ) October meeting recorded several officials as saying they had concerns about the economic outlook.

Japan'€™s currency advanced from a six-month low against the greenback as one BOJ member said it was '€œhighly uncertain'€ whether inflation would rise toward the 2 percent target. The euro rose after China'€™s central bank governor said the 17-nation currency was important to his country'€™s reserve management, while European Central Bank (ECB) policy maker Benoit Coeure said the institution expected inflation to pick up gradually. (tam)