BI vows to do its utmost to defend rupiah

JAKARTA (JP): Bank Indonesia will do everything in its power to prop up the rupiah and prevent it from sliding even further, Governor of Bank Indonesia Sjahril Sabirin announced on Wednesday.

"Bank Indonesia is ready to intervene in the local unit if necessary," he told reporters.

There had been rumors later in the day that the central bank had stepped in by selling around US$20 million.

Sjahril also said that Bank Indonesia would not follow the U.S. Federal Reserve, which had cut interest rates by 50 basis points earlier this week.

On Wednesday's weekly auction, the benchmark interest rate of Bank Indonesia's one-month SBI promissory notes was unchanged at 17.66 percent.

The rupiah has been under pressure over the past three days, which analysts said was due to a combination of high corporate dollar demand to repay debt and the uncertainty created by last week's terrorist attacks on the U.S.

The rupiah ended lower at Rp 9.615 per U.S. dollar late on Wednesday compared to Rp 9,540 on Tuesday.

The local currency soared to as high as Rp 8,200 as confidence in the economy improved following the appointment of President Megawati Soekarnoputri late in July and the formation of a credible Cabinet team.

The government has targeted an average exchange rate of Rp 9,600 for this year, which means that the currency must stabilize at around Rp 8,400 throughout the remaining period of the year as it had been hovering below Rp 10,000 for quite some time.

Analysts, however, feared that the currency could drop to below the Rp 10,000 level again amid concerns that U.S. retaliation might trigger a new round of political uncertainty in the country, which has the world's largest Muslim population.

The U.S. government has singled out Saudi Arabia-born millionaire Osama bin Laden as the prime suspect in the attacks. Bin Laden is believed to have stayed in Afghanistan as a guest of the Taliban government.

Some say that Megawati's visit to the U.S. this week could trigger unrest at home particularly if the U.S. government did attack Afghanistan.

Separately, Bank Indonesia deputy governor Miranda Goeltom said that the weakening of the rupiah was partly due to the postponement of the Paris Club talks.

"The market sentiment is negative because the IMF and the Paris Club were forced to postpone their meetings due to the New York terrorist incident," Miranda said.

The International Monetary Fund (IMF) and the World Bank are postponing their annual meetings slated for Sept. 29 and Sept. 30 because of security concerns following the attacks against the U.S. It is not yet certain when the meetings will be resumed.

The Paris Club of creditor nations was expected to meet with the government last week to discuss the rescheduling of Indonesia's sovereign debts maturing in 2001 and 2002. The meeting was postponed because U.S. representatives were unable to travel to Paris following the terrorist attacks.

Miranda said that the negative sentiment was unfounded as the postponement of the meetings would not effect the club's decision on the rescheduling of Indonesia's sovereign debts.

Meanwhile, the Jakarta Stock Exchange (JSX) ended higher on Wednesday due to a rebound in a couple of blue chip stocks.

The JSX composite index ended up 2.1 percent or 8.617 points at 422.450 points.

Dealers said that sentiment had improved after the U.S. market fell only slightly on Tuesday. The Dow Jones Industrial Average closed down 17.30 points, or 0.2 percent at 8,903.40.

The U.S. stock market fell sharply when it resumed trading on Monday, after a four-day closure following the terrorist attacks.

Meanwhile, AP reported that U.S. stocks stabilized in early trading on Wednesday with tentative buying easing the selling pressure that depressed Wall Street in the aftermath of the terrorist attacks.

In the first hour of trading, the Dow Jones industrials rose 26.34 points to 8,930.04. (tnt)