BI vows to mount defense against rupiah weakening

JAKARTA (JP): Bank Indonesia said on Friday it would attempt to defend the rupiah against rising selling pressure amid fears of growing antiforeigner sentiment here.

Bank Indonesia Governor Sjahril Sabirin said the surge in anti-U.S. demonstrations had added to the negative sentiment weighing against the rupiah.

"We will attempt to protect the rupiah from these conditions," Sjahril told reporters but did not say whether that would include market interventions.

The rupiah has been reeling following a rise in anti-U.S. protests, triggered by the United States' plans to attack Afghanistan.

Radical Islamic groups have been threatening to hunt for American citizens and expel them, prompting the U.S. government to slap a travel ban on Indonesia.

According to U.S. Ambassador to Indonesia, Robert Gelbard, eight U.S. firms have already pulled out of the country over security concerns.

Fears of street violence as thousands of anti-American protesters flooded Jakarta's thoroughfares on Friday, had also contributed to negative market sentiment, dealers said.

The rupiah ended Friday trading at Rp 9,710 against the U.S dollar, down from 9,685 in Thursday's trading.

Since the terrorist attacks on New York and Washington on Sept. 11, the rupiah has lost seven percent of its value.

Sjahril said much of the rupiah's woes were inflicted by developments on the global front.

The attacks had left the global economy teetering on the brink of recession, pushed by a sharp drop in U.S. consumer confidence as the country prepared for war.

However, he said the central bank would not act unilaterally in its response to the impact of the terrorist attacks.

"In the efforts we make, we will be looking at this (development) as part of the broad picture," he said.

Sjahril said he expected the rupiah downturn to be only short-lived.

"The rupiah has seen lots of negative impacts, so if there are new ones we hope they won't affect the rupiah too much," he said.

But according to Sjahril, it had become difficult to predict the rupiah's movement.

He said the rupiah could still find reprieve in the enduring confidence the market had in the new government.

"We hope that all of this (recent developments) will have no negative impact, in net I mean," he said.

The new government managed to regain the confidence of the international financial community when it secured a lending agreement with the International Monetary Fund (IMF) in August.

Indonesia received major donor country commitments for the rescheduling of sovereign debts, as well as for continued financial assistance.

But analysts attributed the rupiah's recent falls to the market's short term reaction to talk of war and global recession.

On the stock market, the index mirrored the rupiah's drop.

The Jakarta Stock Exchange (JSX) Composite Index shed 0.7 percent of its value on Friday trading, dropping to 392.47 compared to 395.04 a day before.

Separately, senior economist Dradjad Wibowo from INDEF warned the government against turning a deaf ear to the anti-U.S. protests on the streets.

"If people here perceive the government as being pro-America, there will be more demonstrations," he warned.

He said Indonesia should strike a fine line between supporting the global fight against terrorism, without blindly following the U.S. lead.

"This isn't easy... it's risk management. The government must be aware that if the U.S attacks Afghanistan, Muslims here will react," he said.(bkm)