BI to continue intervention to help rupiah, Sjahril says

JAKARTA (JP): Bank Indonesia Governor Sjahril Sabirin said on Friday that, if necessary, the central bank would continue to intervene in the financial market to help the beleaguered rupiah.

The comment helped push the rupiah slightly up from the day's low of Rp 9,890 per U.S. dollar, ending at Rp 9,860 in late trade, unchanged from the level on Thursday.

"We'll continue to intervene if necessary," Sjahril told reporters at Bank Indonesia headquarters.

Analysts said that with gross foreign exchange reserves standing at more than US$29 billion, Bank Indonesia had sufficient ammunition to undertake any necessary intervention.

The rupiah has plunged to its lowest level in more than two years, briefly skirting around Rp 9,900 per dollar earlier this week.

Sjahril also said that the new foreign exchange ruling introduced by Bank Indonesia in the middle of January helped the currency remain below the Rp 10,000 to the dollar level.

"The new forex ruling has been effective," he said.

The forex ruling basically bans the transfer of rupiah to non- residents to help curb speculation against the local unit overseas. The measure is aimed at reducing the volatility of the rupiah's exchange rate.

But Sjahril reiterated that Bank Indonesia had no intention of introducing capital control.

The new forex ruling has raised fears that it was a preliminary step toward Malaysian-style capital control.

Traders said that the sharp plunge in the rupiah this week was caused by several factors.

Worsening relations between the government and the International Monetary Fund (IMF) had raised fears that the Fund would continue to delay the disbursement of its next US$400 million loan tranche to the country, which could prompt other key multilateral and bilateral lenders to also halt their assistance to Indonesia.

Such a scenario would have a devastating impact to the country's state budget and economy.

The IMF delayed disbursement of the funds due to concerns over the government-proposed bill on the amendment of the central bank law, the new fiscal decentralization policy and delays in the sale of government ownership in the publicly-listed Bank Central Asia (BCA) and Bank Niaga.

But Coordinating Minister for the Economy Rizal Ramli claimed earlier this week that he had managed to reach agreement with the IMF over the delicate issue of amendments to the central bank law.

The House also approved on Thursday the government plan to sell BCA and Bank Niaga.

Minister of Finance Prijadi Praptosuhardjo said that this was a positive development which would improve relations with the IMF.

The recent ethnic violence in Sampit, Central Kalimantan, which has killed hundreds of people, also created jitters on the financial market with fears that the bloody unrest could spread to other parts of the country.

Fears that the rupiah might drop below the Rp 10,000 level prompted corporations to purchase dollars in a bid to secure resources before repaying maturing overseas debt.

Analysts, however, said that the prospect of the rupiah plunging beyond the Rp 10,000 level was very slight.

They said it would be unlikely that indebted companies will continue purchasing dollars at a very high rate.

They also said plans by the Indonesian Bank Restructuring Agency (IBRA) to sell its dollars would prevent the prospect of the rupiah continuing to fall beyond the Rp 10,000 level.

Experts pointed out that IBRA would have to sell its dollars if the rupiah fell below Rp 10,000 to make huge profits.

IBRA has more than $500 million to sell on the markets this year. The agency obtains the currency from the sale of its various banking assets.

Meanwhile, Dow Jones said that with President Abdurrahman Wahid still under attack from the House of Representatives, the rupiah would likely test the Rp 9,910 resistance level next week.

The domestic spot market will be closed on Monday for a national public holiday, reopening again on Tuesday. (rei)