Plunging Rupiah Spurs Yudhoyono Into Action With Policy Plans

August 22, 2013 Leave a comment

Plunging Rupiah Spurs Yudhoyono Into Action With Policy Plans

Indonesian President Susilo Bambang Yudhoyono will announce measures on Friday to deal with a slowing economy and a currency that’s fallen to a four-year low. The government will draft a package of policies, and the rupiah’s plunge is the main problem to be tackled, Yudhoyono told reporters in Jakarta today. It will be difficult to reach a target of 6.3 percent expansion by relying on investment as exports decline, he said.

The move comes after Yudhoyono, due to hand over power in elections next year, gave a favorable assessment of his economic record in two speeches on Aug. 16. Since then, central bank data showed the current-account deficit widened to a record in the second quarter, the rupiah fell 3.6 percent and the Jakarta Composite index of shares slid 7.7 percent this week. Growth has slowed for the last four quarters, dipping below 6 percent in the three months through June for the first time since 2010.“Indonesia is too focused on the stock market and late to give a response, as we already saw that GDP growth was slowing down since last year and bond yields increased since May,” said Siswa Rizali, head of investment at PT AAA Asset Management in Jakarta.

The rupiah fell 0.84 percent to 10,775 per dollar by 5:07 p.m. today, the lowest since April 2009, prices from local banks show. The yield on the nation’s bonds due May 2023 slipped two basis point to 8.47 percent after reaching 8.54 percent earlier, the highest since March 2011, prices from the Inter Dealer Market Association show.

Bank Indonesia

Yudhoyono has also nominated two outside candidates for the number two position at the central bank, where policy makers held off from raising interest rates at a Aug. 15 meeting because of slowing growth. Inflation accelerated to the highest in more than four years in July and the currency slid.

“The rupiah is what I see as the main issue that we need to find a solution for,” Yudhoyono said today, without giving details of the policy plans.

Mirza Adityaswara, chairman of Lembaga Penjamin Simpanan, which guarantees deposits at banks in Indonesia, is a candidate for Bank Indonesia’s senior deputy governor post, Sohibul Iman, the deputy speaker in parliament, said by telephone today. PT Bank Danamon Indonesia (BDMN)’s chief economist Anton Gunawan is the other candidate, Harry Azhar Azis, from the parliamentary commission that overseas financial affairs, said by telephone today. The commission will test the two candidates, Azis said.

“This is interesting as the President offered two names from outside the central bank,” said Azis. “I thought the President will submit one name from inside BI. Both of them have good expertise as economists.”

The nominations come after Yudhoyono unexpectedly moved his former finance minister Agus Martowardojo into the top seat at Bank Indonesia in May. Having left its benchmark rate at a record low to spur growth since February 2012, Bank Indonesia then lifted the rate by a total of 75 basis points in June and July and eased its grip on the currency to allow it to weaken.

The government needs to take longer-term reforms rather than quick-fix solutions to address investor concerns, AAA Asset Management’s Rizali said.

To contact the reporters on this story: Novrida Manurung in Jakarta at nmanurung@bloomberg.net; Agus Suhana in Jakarta at asuhana1@bloomberg.net

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