Beg the Peg

Indonesian government had tried three systems of exchange rate, just to fit with the national economic condition. Just like any other country, Indonesia implemented the fixed exchanger rate on early years after its independence.

During the Sukarno era, the government lifted most restrictions on international transactions that were heavily regulated. To maintain the exchange rate, BI was obliged to buy or sell as much foreign currency as demanded to get the predetermined rate. Fortunately, country reserve was far bigger than the debts, due to Guided Economy system, a new economy system stressing socialist and co-operative ideals with priorities given to state-run companies than private ones, so had enough finance to do that.

On the year of 1970, government decided to let rupiah sold freely against a basket of currencies of country’s main trading partner, such as US dollar, Japanese Yen or Dutch Guilder. However, Bank Indonesia had to intervene in the market, so that rupiah kept on desired range of currency price against the dollar. Every morning, the central bank had announced the highest and lowest level of price of rupiah to one dollar. For over 25 years, BI had revised the limit for seven times.

Asian financial crisis reduced the rupiah value almost one third overnight. On June 1997, rupiah had traded on Rp3,035 per dollar, and it reached the lowest level of Rp16,800 to one dollar just exact one year later.

In view to secure foreign exchange reserved, made the monetary policies more effective, the Government phased out the intervention band and adopted a freely floating exchange rate system, since August 1997.

However, analyst Farial Anwar of Currency Management said Indonesia just an IMF’s victim. “It created too much speculators,” he said. The rupiah, he added, is more sensitive toward rumours on the political situation rather than toward economic fundamental. And it necessity to restrain the exchange of rupiah with implemented again the managed float system. Because the more rupiah is fluctuate, the more uncertainty in the business.

As November 2006, rupiah is selling on Rp9,100 to one dollar.