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ank Indonesia’s foreign exchange (forex) reserves dropped US$14.52 billion in four straight months to close 2011 at $110.12 billion as the central bank used the reserves to defend the rupiah.

The rupiah saw heavy selling pressure from September to the year-end as foreign investors trimmed their investments in local stocks and bonds amid fears that the European crisis might affect Indonesia’s economy.

The nation’s currency suffered its first annual loss in three years, falling 0.7 percent to close 2011 at Rp 9,081 per US dollar, as corporate demands for dollars to repatriate earnings or to pay debts while approaching the year-end exacerbated negative external factors.

 Indonesia’s forex reserves reached an all-time high of $124.64 billion in August before the central bank spent billions of dollars to buy rupiah and prevent a steep drop in the currency which might have destabilized the economy. However, on an annual basis, reserves were up $13.91 billion in 2011.

 “We estimate that forex reserves will relatively increase in 2012. There will be improvement, though not as much as 2010,” BI governor Darmin Nasution told The Jakarta Post in an interview.

Forex reserves were up $30.1 billion in 2010, more than double 2011’s increase.

Darmin said he expected pressure on the rupiah to persist, especially in the early months of the year, if debt woes in Europe were not resolved, draining reserves further. For the full year of 2012, however, the rupiah might be in flat.

“Europe’s situation is key. If it makes the market more jittery, pressures will persist. But our export-earnings regulation will take effect, so we don’t forsee the rupiah to weaken too much from current levels,” he told the Post.

 “The rupiah’s 2012 average rate is expected to be more or less the same as the fourth quarter of 2011, or even probably slightly better.”

The rupiah continued moving downward in the first three days of 2012, having fallen 1.1 percent to Rp 9,170 against the US dollar as of 3:20 p.m. Jakarta time, according to Bloomberg.

 Darmin said he expected the appreciation to begin at the end of 2012, depending on the government’s pending policies, such as the limitation of subsidized fuel, but did not see gains outperforming 2011’s peak of about Rp 8,400 per US dollar.

 David Sumual, an economist at Bank Central Asia (BCA), shared the same view that the buying mood for the rupiah would come after there were certainties on crucial policies that might affect the government’s fiscal condition.

“Investors, including rating agencies Standard & Poor’s and Moody’s Investors Service that have yet to follow Fitch Rating’s lead of upgrading Indonesia’s sovereign debt rating to investment grade, are concerned,” he said.

David, who said he considered the fundamentally fit value for the rupiah to be Rp 9,180 per US dollar, urged the central bank to use its reserves to smooth the volatility of the rupiah, or otherwise it would drain the much-needed reserves.

The $110.12 billion in reserves as of December are sufficient to pay for more than 6 months of imports and government’s short-term foreign debts, well above the central bank’s standard level of 4 months.