Sat, 04 Nov 2000

Government, BI to curb currency speculation

JAKARTA (JP): The government and Bank Indonesia have agreed to immediately take measures to help reduce pressure on the ailing rupiah, including limiting speculation.

"Looking at the latest exchange rate development, the government and Bank Indonesia have agreed to immediately take measures to reduce pressure on the exchange rate of the rupiah, especially by reducing speculative foreign exchange transactions," the government and Bank Indonesia said in a joint press statement, co-signed by Coordinating Minister for the Economy Rizal Ramli and Bank Indonesia senior deputy governor Anwar Nasution, issued late on Thursday.

"Bank Indonesia will also intensify the monitoring of vostro accounts, including conducting on-site supervision of banks that actively carry out foreign exchange transactions," the statement said.

Vostro account is a demand deposit account maintained for a local bank by a bank in a foreign country. It is used primarily to arrange foreign exchange transfers between the respective banks.

It is unclear whether there would be new measures to curb currency speculation as the statement lacked details. However, on-site supervision has been started a few months ago.

The press statement was issued following a meeting between senior economics ministers and Bank Indonesia officials.

The rupiah has been under strong pressure over the past couple of weeks due to a combination of unstable domestic political conditions and falling regional currencies, particularly the Philippines peso. The local currency fell to more than Rp 9,400 per U.S. dollar this week, the lowest level since July.

Bank Indonesia had spent around US$10 million last week to help prop up the ailing rupiah.

The rupiah was slightly stronger on Friday at Rp 9,160 per U.S. dollar compared to Rp 9,175 on Thursday.

Dealers said the rupiah actually managed to appreciate to around Rp 9,050 but was lower again in the afternoon due to dollar demand for corporate foreign debt repayment.

Meanwhile, Rizal said on Friday the on-site supervision of Bank Indonesia's officials in dealing rooms of banks operating here was important to help curb currency speculation.

"From the information we have received, it (currency speculation) started in Singapore and is being done by banks," he told reporters prior to a meeting with German foreign minister Joschka Fischer.

Rizal said the government particularly suspected foreign banks.

"Thank God, most of them are not local players," he said.

He dismissed the notion that demand for U.S. dollar rose because of a rise in imports of raw material and debt payments.

He said the government had studied the dollar demand and concluded that the underlying demand for dollars remained low.

"They (currency speculators) are taking advantage of the political conflict here," he said.(rei/bkm)