BI intervenes as rupiah falls further

BI intervenes as rupiah falls further

JAKARTA (JP): The rupiah plunged to another new low yesterday
dropping to 3,850 against the U.S. dollar at midday before easing
in the afternoon due to Bank Indonesia's intervention, currency
dealers said.

The dealers said the central bank intervened in the spot
market with some US$200 million, which helped prop up the rupiah
to close at 3,710/25 against the opening of 3,725/35.

The worsening currency market also perforated trading
activities on the Jakarta Stock Exchange with the main price
gauge falling by 2.58 points to close at 512.89.

Foreign exchange dealers said even though the central bank's
intervention was small, it helped pull back the rupiah from
further decline.

"The central bank intervened in the market with a very limited
amount of dollars, but it psychologically helped the rupiah
recover slightly against the dollar," a local bank dealer said.

However, he said, trading volume remained quite small.

Currency dealers attributed the persistent weakening of the
rupiah to the high demand for dollars from local companies to
refinance their dollar-denominated debt as well as the weak
regional currency markets.

Rino Agung Effendi, an economist at state-owned Danareksa
Sekuritas, suggested yesterday that the government set up a
consortium consisting of an Indonesian government body and a
foreign financial institution to bail out local companies' dollar
debts.

"The consortium would buy all offshore obligations of the
local companies. This would help the rupiah from a further
decline against the dollar," Rino said.

Another possible scheme, he said, was to exchange the offshore
dollar debts with shares in local companies.

"The bottom line of this scheme is that the government should
intervene in the market to prevent the current short-term
monetary problem from turning into long-term problem," Rino said.

Local currency dealers also suggested that the central bank
give loans in dollars to local companies to refinance their
dollar debts.

"This scheme would be helpful if the central bank could lend
dollars to selected local companies to refinance their offshore
debts," a dealer at a local bank said.

Economists and analysts in Jakarta said yesterday that these
schemes were necessary because the recently launched facility by
the central bank to encourage export companies to release their
dollar holdings could not help the rupiah from falling.

Rino said exporters would not automatically use the facility
because they would rather keep their dollar earnings than release
them.

"Why should I release dollars while I know the rupiah will
continue to weaken against the American greenback," Rino told The
Jakarta Post.

"The demand and supply for the dollar is totally unbalanced as
the number of Indonesian companies rushing for the dollar is so
huge that offshore operators sell their dollars at higher and
higher rates," Rino said.

The worsening foreign exchange market pushed down the Jakarta
Stock Exchange composite index to below the 500 level during
lunch break to 497.96 before recovering in the afternoon to close
at 512.89.

Some 377.9 million shares changed hands on the regular market
valued at Rp 405.01 billion (US$109.46 million).

Stock brokers said intervention by the central bank in the
money market yesterday provided a positive sentiment to stock
market activities which saw the index recover to above the
psychological level of 500 points.

"The main key point is that the more uncertain the currency
market is and the higher the interest rate is, the more difficult
it is for the stock market to rebound," head of sales at ING
Baring Securities Darwin Sutanto said. (aly)

Editorial -- Page 4

Currencies -- Page 11