Central banks' action eases Indonesian crisis

Central banks' action eases Indonesian crisis

TOKYO (Reuters): Concerted intervention by Asian monetary authorities may help ease currency jitters in Indonesia but problems such as its external debt remain to be cleared up in the longer term, Asian currency dealers say.

The intervention may be effective, though, in preventing the crisis in Indonesia from spreading to other places such as Taiwan, Hong Kong and the United States, they said.

Monetary authorities of Indonesia, Japan and Singapore on Monday stepped into the Singapore foreign exchange market to prop up the Indonesia rupiah by selling U.S. dollars.

The value of concerted dollar sales for the rupiah was estimated at $300 million to $500 million, senior traders said. "With this action, the currency crisis (in Indonesia) will be defused in the near term," said Hiroshi Kikuchi, assistant general manager of the treasury department at Sanwa Bank Ltd.

He said it was symbolic such intervention was conducted for the rupiah but not for the Thai baht, which has been hit just as hard in the market turmoil that has swept through Asia.

"This may reflect the wish of monetary authorities to show they are more willing to help those trying to implement economic reforms quickly and steadily," Kikuchi said.

Indonesia on Monday announced economic reforms after reaching a multi-billion dollar agreement with the IMF including measures to loosen import and export controls. The package followed Saturday's announcement it had closed 16 ailing banks.

Indonesia's moves contrasted with dithering in Thailand after Bangkok agreed with the IMF on structural reform in September with a $17.2 billion bailout. IMF officials on Monday urged Thailand to implement rapid austerity measures.

Mikio Yasutake, manager at Bank of Tokyo-Mitsubishi, said the IMF program and currency intervention could become a breakthrough for Indonesia to get out of a vicious circle of currency depreciations and economic slowdown.

Dealers said Thailand's problems were more deep-rooted and it would be hard to rescue it by intervention alone. Indonesia's economy is in far better shape and it has a smaller current account deficit and greater natural resources, they said.

"Apart from Thailand, the authorities may have wanted to cut the root of the knock-on effect of Asian currency turmoil on other nations such as Hong Kong and the U.S.," Kikuchi said.

But he said there was still uncertainty over the longer-term stability of the rupiah because of strong demand for the U.S. dollar by companies operating in Indonesia.

Indonesia has more than $100 billion of external debt, the largest among Southeast Asian nations.

Japanese Finance Minister Hiroshi Mitsuzuka told a news conference on Tuesday he hopes Japan's participation in concerted intervention on Monday to help shore up the Indonesian rupiah will bring about currency stability.

"Japan's participation in the intervention shows Japan's position to support Indonesia and we hope that it will bring about currency stability," he said.

In an unusual move, Mitsuzuka confirmed that the Bank of Japan intervened in concert with Indonesian and Singaporean monetary authorities to defend the rupiah.

A ministry official said later that the intervention had been reasonably effective. "It set a precedent for concerted action."

He said Indonesia's fundamentals were not bad, but the rupiah overshot them during its recent decline against the dollar and that was why the monetary authorities took action.

Dealers and analysts said Japan's participation in intervention implied it was ready to take a key role for the stability of Asian currencies.

Japan was also keen to take a lead in stabilizing Asian currencies through measures such as setting up an Asian fund, an idea that initially met opposition from Western nations. But it was winning approval from the United States by stressing that the Asian facility would supplement the IMF.