SCENARIOS-Indonesia policy makers battle rupiah slump

By Ed Davies

JAKARTA, Dec 4 (Reuters) - Indonesian policymakers have been scrambling to avert a potential currency crisis since the rupiah IDR= hit a decade low last month. Thursday's moderate interest rate cut that contrasted with aggressive cuts elsewhere, underscored their caution.

Southeast Asia's economy is now in much better shape than a decade ago, when the Asian financial crisis ravaged the indebted corporate sector and gross domestic product shrank 13 percent in 1998.

The government's debt-to-GDP ratio now stands a healthy 40 percent of GDP compared with around 100 percent in 2000.

While markets respect the country's current top economic team -- Finance Minister Sri Mulyani Indrawati and Bank Indonesia Governor Boediono -- they have their work cut out for them in the current volatile global environment.

Here are some possible scenarios and policy options:

CENTRAL BANK INTERVENTION

The central bank has repeatedly intervened to support the rupiah, the second-worse performing currency in Asia this year with a 22 percent fall against the dollar, although this has only slowed the fall while driving down the country's foreign exchange reserves about 12 percent this year to just over $50 billion, according to the latest data. On Thursday the central bank said "it will always be in the market," to stabilise the rupiah.

FOREX RESTRICTIONS

The central bank said on Nov. 13 that foreign exchange purchases above an equivalent of $100,000 per month must be supported by underlying transactions. It later imposed a limit on sales of structured financial products by commercial banks.

Authorities also plan to order energy contractors to deposit billions of dollars earmarked for projects in local banks.

MONETARY POLICY

Unlike many banks around the world, Indonesia's central bank has held back with cutting rates even after the global financial crisis deepened in September, seeking to maintain a healthy premium over the U.S. Fed funds to support the rupiah.

It trimmed its benchmark rate by a quarter percentage point to 9.25 percent on Thursday, its first cut in a year, to help Southeast Asia's biggest economy cope with the global downturn. [ID:nJAK61417]

LIFT INFRASTRUCTURE SPENDING

Authorities could speed up infrastructure spending on projects from roads to ports, although ambitious plans seem to have often been held up by land ownership disputes.