A Return of the Strong Rupiah?

(5/27/2002)

Positive sentiment towards efforts by the Indonesian Government to strictly implement it economic reform program in combination with a weakening U.S. dollar internationally, saw the Indonesian Rupiah break through the psychological barrier of Rp. 9,000 = US$ 1,00.

On Friday, May 24, the exchange rate for Indonesia's currency against the greenback hovered just under the Rp. 9,000 level at Rp. 8,995.

Since January of this year the Rupiah has demonstrated a strengthening, gaining 15% from the January levels when it traded at Rp. 10,500 to the U.S. dollar. Some experts in Jakarta's forex market expect the Rupiah to strengthen further, achieving an eventual trading plateau of near Rp. 8,000. The same experts, however, quickly caution that current advances will quickly collapse and the currency will retreat if President Megawati's government is seen to backtrack on its program of economic reform.

Effects on Tourism

Because much of Bali's tourism industry is price-based in U.S. dollars, the effect of a shift in the Rupiah's value on the tourism economy will continue to be something of a mixed bag:

- Hotel prices, published mostly in U.S. dollars will be unchanged. Meanwhile, operating margins of hotel operators will narrow as they are compelled to spend more of their dollars to pay their Rupiah-based local salaries and energy costs.

- Restaurant dining and shopping experiences will become more expensive as visitors will spend more of their home currency to purchase the Rupiah necessary to dine and shop. The effects in the Australian market, one of Bali's most important sources of visitors, will be somewhat offset by a strengthening of the Australian dollar in recent weeks.

- Tour and transportation operators, already under pressure from dramatic increases in fuel prices, will be faced with the possibility of having to increase their U.S. dollar based tour and transfer prices which were priced and quoted on vastly different rupiah rates for transport and guide services.