Indonesian Rupiah Gains on Yudhoyono Re-Election Speculation

By Patricia Lui

April 27 (Bloomberg) -- Indonesia’s rupiah rose on speculation President Susilo Bambang Yudhoyono will win re- election this year, enabling him to pursue economic policies that are helping sustain growth amid a global recession.

The rupiah strengthened for a second day versus the dollar, making it the sole gainer among Southeast Asia’s five most-used currencies. Yudhoyono’s Democrat party won the most seats in a parliamentary election this month, initial results suggest, boding well for the presidential race.

“The key issue for investors is that, whatever form the new government takes, that the economic reform process remains on track,” said Thomas Harr, a currency strategist at Standard Chartered Plc in Singapore. “We think that is likely and therefore, we like the rupiah. In fact, it is the only Asian currency in which we are overweight.”

The rupiah rose 0.2 percent to 10,810 per dollar as of 10:20 a.m. in Jakarta, according to data compiled by Bloomberg. It is the best performer today among Asia’s 10 most-traded currencies excluding the yen and the sole gainer this year, having strengthened 0.8 percent against the greenback.

Exports may stabilize this year as commodities prices rise and the rupiah’s depreciation help boost the attractiveness of Indonesian goods, said Trade Minister Mari Elka Pangestu on April 25. Indonesia’s exports, which account for 25 percent of the country’s gross domestic product, tumbled 33 percent from a year earlier in February to $7.08 billion.

Limited Downside

“Indonesia’s closed economy means its growth will outperform the rest while its current account will also improve as commodities prices find a floor,” Harr said, adding that the rupiah’s downside will be limited to 11,500 “at most” and the currency may rise to 9,800 to the dollar by year-end.

Golkar, the nation’s oldest party, named Vice President Jusuf Kalla on April 23 as its candidate for the July presidential election, withdrawing its support for Yudhoyono. The move may prevent Yudhoyono securing the majority of the votes in the July 8 contest, forcing a run-off in September, according to pre-election surveys.

The president has seen through reforms that saw the economy expand more than 6 percent in the past two years, the fastest pace since the 1997-1998 Asian financial crisis. He has instigated new laws to attract money from abroad, including tax breaks on investments, and the government predicts gross domestic product will increase at least 4 percent this year.

To contact the reporter on this story: Patricia Lui at plui4@bloomberg.net