Govt forecasts sees weaker rupiah next year

Rendi Akhmad Witular, The Jakarta Post, Jakarta

The government, while expecting a higher inflow of investment and export revenues, remains conservative in predicting the exchange rate of the rupiah to the greenback next year.

After a Cabinet meeting Monday, it projected the rupiah would average Rp 9,200 per dollar for the 2007 state budget, lower than the 9,000 estimated for this year.

The figure is still a more optimistic view than the initial projection of 9,700 made in March.

"During the meeting we set out the final assumptions for the 2007 state budget. We will discuss further the assumptions with legislators to pass it into law," said Coordinating Minister for the Economy Boediono.

The rupiah, driven by overseas short-term funds seeking higher returns in rupiah-based assets, has appreciated sharply, gaining more than 12 percent this year to make it one of the best performing currencies in the world. It closed Monday at a two-year high of 8,738 to the dollar as investors shrugged off the central bank's plan to cut its interest rate by a quarter basis point when the board of governors convenes Tuesday for a policy meeting.

The strengthening of the rupiah had prompted the government to revise the exchange rate assumption in the 2006 state budget to 9,000 from the initial projection of 9,900. The government is expected to seek House of Representatives' approval in July for the revision of the state budget.

Boediono also was upbeat the economy would grow at a higher rate, driven by consumption, investment and exports, next year.

"Flow of foreign funds next year will be more real, not in the form of investment portfolios like we see today. This will in turn help the rupiah to become more stable," said Boediono.

Energy and Mineral Resources Minister Purnomo Yusgiantoro said the government estimated oil prices at an average of US$58 per barrel next year -- far lower from the current prices of over $70. The assumption was based on the opinion of dozens of experts, he said.

"The experts say that oil prices will ease next year to reflect their fundamental factors, in which the demand will be triggered by real figures rather than those of speculation like is happening now," he said.

State budget assumption

2007 2006 (original forecast)

Economic growth 6.4% 6.2%
Inflation 6.0% 8.0%
Rupiah 9,200 9,900
Bank Indonesia SBI notes 8.5% 9.5%
(3 month)
Oil price US$58/barrel US$57/barrel
Oil production 1.05 million bpd 1.05 million bpd
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