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Indonesia will soon unveil a policy package aimed at propping up the fragile rupiah and helping an economy growing at its slowest pace in six years, senior government officials said on Thursday. The package is expected to add to tax incentives announced on Monday aimed at promoting selected activities including oil refineries and infrastructure.
Governments and central banks across emerging markets are being forced into action to stem falls in their currencies, especially after China allowed its yuan to weaken to four-year lows. On Wednesday, Malaysia created a special economic committee to propose measures to restore confidence in that country's economy. The coming Indonesian package "is to increase foreign exchange reserves as well as keeping macroeconomic (stability), including addressing purchasing power," said Finance Minister Bambang Brodjonegoro, noting there would be a mixture of tax incentives and other policies.
Financial markets had hoped the government would release details on Thursday after officials indicated a package announcement was coming, but the minister said more time was needed. "Patience. Policies don't fall from the sky," Brodjonegoro said. "We have to prepare it first... if this is like a meal, we're still having the soup." The minister said Indonesia "can't rely on commodity exports for too long," adding that tax incentives would be given to manufacturing industries.
"The direction is downstream development, based on natural resources, and industries that Indonesia really needs." Earlier, chief economics minister Darmin Nasution said the package "relates to the real sector. This relates to finance and (also) to deregulation," and policies were expected to come into effect next week. "First it will make economic activity smoother. Secondly it will push for foreign currency to come in," Nasution said.
On Tuesday, Bank Indonesia (BI) cut its GDP growth outlook for this year and next year. On Thursday, BI Governor Agus Martowardojo said he expected 2015 economic growth to be 4.89 percent, the weakest since 2009. The rupiah strengthened 1 percent to 13,980 to the dollar on Thursday as Jakarta shares rose more than 4 percent and traders said the central bank was spotted directly intervening to support the currency. The unusual move indicated strong determination of the authority to support the second-worst performing Asian currency so far this year by showing its presence in the market, traders said. The rupiah's gains followed an eight-day slide to 17-year lows. For the year, the rupiah has shed about 11.5 percent against the dollar. Indonesia's large current account deficit and the global slump in commodities prices have also pressured the rupiah.

Copyright Reuters, 2015

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