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Rupiah Continues to Weaken Against the Greenback

Shifts in Rupiah's Value May Bring Windall to Tourism Sector.

(5/31/2004) According to financial experts, the weakening in the value of the Indonesian Rupiah against the U.S. Dollar appears likely to continue for at least the next few months due to global concerns over impending hikes in the U.S. interest rate and excess liquidity in the Indonesian banking sector.

On May 29, 2004, the Rupiah hit an eighteen month low against the U.S. dollar at Rp. 9,290 per dollar, weakening almost Rp. 1,000 from its rate just four months before in January of this year.

Domestic Tourism to Increase

The Rupiah's downturn may form the basis for an increase in domestic tourism to Bali as Indonesians may now find it too expensive to travel abroad. Current official estimates are that as many as two million Indonesians take overseas holidays every year. Faced with a more expensive dollar and a weakened Rupiah, these travelers may now choose to holiday closer to home.

As a result of this development, local tour operators are expected to launch domestic holiday packages in order to cover the shortfall in sales from diminished sales of overseas holidays.

Domestic holiday-makers to Bali will be aided somewhat by the fact that many hotels maintain a tiered rate structure, pricing hotel rooms in U.S. Dollars for foreign visitors while maintaining a separate Rupiah-based rate for Indonesian nationals.

Hotels Set to Benefit

Meanwhile, hotel operators will accrue a financial advantage for the Rupiah's continuing decline. Hotels catering primarily to overseas markets will continue to earn dollars while paying major parts of the operating costs - such as energy and salaries, in weakened Rupiahs.