29/10/2008 (Sin Chew Jit Poh), Jakarta - The Indonesian government and central bank on Tuesday (28 Oct) unveiled a series of measures to bolster foreign exchange reserves and market confidence, just as the rupiah hit a seven-year low of 11,900 against the US dollar.

The figure represents the rupiah’s weakest showing against the greenback since April 2001, according to Bloomberg, although a suspected intervention by the central bank brought the local currency back to 10,900 at 4:19pm Jakarta time.

Bank Indonesia Governor Boediono said the rupiah’s recent dive was caused by an excess in liquidity after the central bank cut a reserve requirement.

Standard Chartered Bank economist Fauzi Ichsan said the fall in the rupiah was attributable to the drying up of the dollar supply in the market.

“This thing starts with the subprime crisis, which left most American banks with a massive shortage in liquidity, and so pushed investors to draw dollars from around the world back to the US,” he said.

“Until when? Until the American and the global banking systems get back to normal.” The rupiah has fallen 12 per cent so far this month.

In response to the rupiah’s shaky performance, the government issued new policies to bolster liquidity and foreign exchange reserves, including efforts to boost the export-oriented real sector.

Market interventions to support the rupiah in recent weeks were widely blamed for the decline in BI’s foreign exchange reserves, currently at US$52 billion, but down from its July 2008 peak of $60.6 billion.

Speaking after a Cabinet meeting also attended by Boediono, Finance Minister Sri Mulyani Indrawati said the government would eliminate the 2.5% export duty on crude palm oil (CPO) and provide post-shipment financing guarantees, such as letters of credit (LCs), for exporters, effective 1 Nov.

It will also require all state companies to place their foreign reserves in domestic banks.

In addition, state firms will be obliged to submit a weekly report to the Office of the State Ministry for State Enterprises on their foreign currency needs. A daily update on the weekly report will also be required.

As a second line of defense, the government will, if needed, exercise bilateral currency swap agreements with the central banks of China, South Korea and Japan, under the ASEAN+3 framework.

Under the deal, ASEAN members and S. Korea, China and Japan can swap foreign currencies as reserves are made accessible to members at a time of crisis.

Sofjan Wanandi, chairman of the Indonesian Employers’ Association (Apindo), said the depreciation of the rupiah had its pros and cons for businessmen; on the one hand, it benefited export commodities, he said, but on the other hand, it put import commodities at a disadvantage.

“What we all really want is for the government to maintain the rupiah’s stability as it relates to our necessity to calculate production costs and estimate business risks,” Sofyan said.