BI expects rupiah to gain strength soon

JAKARTA (JP): Bank Indonesia deputy governor Miranda Gultom expressed confidence the rupiah would gain strength against the U.S. dollar in light of the improving domestic political situation.

Miranda said on Saturday the "reconciliation" between President Abdurrahman Wahid and People's Consultative Assembly Speaker Amien Rais should provide a positive sentiment to the currency market.

Speaking to the media during a break in the Indonesian Economists Association congress in Makassar, South Sulawesi, Miranda also said the confusion created last week by the downgrading of the country's long-term foreign currency issuer credit rating to selective default by Standard & Poor's had passed.

Asked if the central bank would intervene in the market by selling dollars to prop up the rupiah, she said: "We will wait for the right time."

Miranda was quoted by Antara news agency as saying the central bank would not sell its dollars if the market was still volatile due to massive speculation.

She said the central bank must act carefully because it did not want the market to think Bank Indonesia was panicking.

"We must be able to read the signals of the market and respond accordingly," she said.

The rupiah dropped to a six-month low against the U.S. dollar on Thursday, hitting 8,005 to the greenback. Traders said the rupiah was continuing to react to the downgrading of the country's credit rating. The rupiah's plunge also came amid reports of increasing differences between Abdurrahman and Amien, and calls for a Special Session of the Assembly in August to seek the President's accountability.

Amien suggested the special session in response to Abdurrahman's call to end the 34-year-old ban on communism.

But Amien later retreated from his statements, saying a special session would not be scheduled when the 700 Assembly members convened in August.

Amien also said on Thursday he had telephoned Abdurrahman to resolve their differences.

"This should provide a positive impact on the money market," Miranda was quoted as saying by Detikcom online.

She, however, admitted the market might not react immediately to the news. "The market reacts fast to negative information, but doesn't react quickly to positive information. So if negative information has come forth, it's not easy to remedy it."

Miranda also said the selective default rating issued by Standard & Poor's was inappropriate because this rating should only be given to countries which asked for debt forgiveness.

She said this was not the case with Indonesia when it reached an agreement with the Paris Club of creditor nations in the middle of this month to reschedule some US$5.8 billion in sovereign debt.

Meanwhile, a currency trader said a comment by Bank Indonesia senior deputy governor Anwar Nasution last week also caused jitters in the currency market.

Anwar was quoted as saying the central bank could not prop up the rupiah even if it plunged to the 10,000 level against the dollar, because of the bank's limited foreign exchange reserves.

He said the maximum daily intervention capacity of the central bank was $1 million.

The trader said the market reacted negatively to the comment, adding that it was inappropriate for a senior central bank official to make such statements.

The central bank has a strong interest in seeing the rupiah stabilize at around 7,000 to the dollar in order to achieve its 3 percent to 5 percent underline inflation target for 2000.

Bank Indonesia Governor Sjahril Sabirin has repeatedly said he was confident the Rp 7,000 target could be reached because of improvements in the country's economic fundamentals. (rei)