Currencies unmoved by BI governor's exit

Currencies unmoved by BI governor's exit

SINGAPORE (Reuters): Asian currencies were subdued yesterday as traders mulled the likelihood of Indonesia ploughing ahead with a currency board system despite daily criticism of the proposal.

The rupiah remained above the 10,000 per dollar level for most of the day, slipping through briefly on early speculation that Bank Indonesia governor J. Soedradjad Djiwandono, who is understood to oppose the currency board, was about to resign.

Soedradjad denied the rumors and the rupiah stagnated for much of the day, failing to shrug off its inertia even on news that he had been fired by President Soeharto.

A statement from the state secretariat said his position as governor had been "terminated with respect" and Soeharto had replaced him with one of the bank's directors, Sjahril Sabirin.

Rumors of Soedradjad's resignation surfaced last week as Jakarta appeared increasingly prepared to proceed with a currency board, which would remove the need for a central bank.

"Basically, Soeharto is getting rid of all the people who disliked the currency board idea. So there's a very high probability they'll go ahead with it," a U.S. bank dealer in Singapore said.

Dealers said the market remained averse to the controversial fixed rate proposal, under which the rupiah could be pegged at a more favorable 5,000 to 6,000 to the U.S. dollar instead of its current 9,000 to 10,000 range.

For the mechanism to work, Indonesia's reserves would have to be supplemented by the IMF's $43 billion aid package.

But this became questionable after IMF chief Michel Camdessus said there was a good chance the fund would block its program for Indonesia in March if Jakarta went ahead with the plan.

"The market is waiting for them to fix the dollar at 5,000/6,000 per dollar and then it's going to buy the hell out of it (the dollar)," the U.S. bank dealer said.

"Right now, there's no interest to buy dollars above 10,000," the dealer said.

Dealers said the market was also beginning to turn its attention to the Group of Seven (G-7) meeting this weekend, at which finance ministers and central bankers are expected to focus on Asia's crisis and the measures needed to resolve it.

"The market is expecting the group to issue a communique to help Asia out of its crisis. We are especially looking for some announcement on a $10 billion export credit," said a dealer with a European bank.

An effort by the International Monetary Fund (IMF) and Asian governments was expected to pool $10 billion to help ailing Asian countries maintain imports from industrialized nations.

"They have to do something. If the rupiah goes, there might be a second round of global repercussions," said the dealer.

Most Southeast Asian currencies pulled back from early lows as regional stock markets and the rupiah recovered.

The Malaysian ringgit firmed on stop-loss dollar sales around the 3.90 level. It was expected to test 3.80 if the rupiah remained around the 10,000 per dollar level.

Bank Negara Malaysia said it remained committed to a tight monetary policy despite the recent reduction in bank statutory reserve requirements to 10 percent of total deposits and liabilities from 13.5 percent.

The Singapore dollar rose above the 1.66 level to the U.S. dollar compared to its morning lows of 1.6860.

The Thai baht firmed through 46.00 to the dollar as players sought direction from the rupiah and the U.S. dollar.

The Philippine peso finished slightly firmer as banks squared their positions and awaited developments overseas.

In north Asia, the Taiwan dollar ended softer after central bank governor Sheu Yuan-dong was killed overnight when a China Airlines plane crashed at Taipei airport.

Three other central bank officials were also on the plane, returning from a central bankers conference in Bali, Indonesia. There were no survivors.

But dealers said the Taiwan dollar's fall was cushioned by the central bank's speed in reassuring investors that it would maintain Sheu's "not tight, not loose" monetary policy and stick to the priorities of a stable exchange rate and interest rates.

The Seoul won ended weak, but managed to trim early losses due to an inflow of proceeds from gold exports.

Dealers said it was likely to remain under pressure as foreign portfolio flows to the stock market dwindled amid concerns about potential disputes between Korean and foreign banks over derivatives losses.

The Hong Kong dollar was steady but forwards shrugged off worries about regional uncertainty and slid on gains in the local stock market.

Dealers said they did not expect the 1998 budget, due today, to have much immediate effect on interest rates as the government was seen maintaining its cautious fiscal stance.