High demand for dollars sends rupiah to new low

JAKARTA (JP): The high demand for U.S. dollars from local companies dragged the rupiah down further yesterday to a new low of 10,500 against the greenback in morning trade, dealers said.

Dealers said the rupiah managed to recover in the afternoon on news that the German government would help Indonesia settle offshore loans in the private sector.

The spot rupiah recovered to close at 9,650/9,975 in Jakarta against an opening of 10,100/10,200.

Horst Kohler, a special envoy of Germany's Chancellor Helmut Kohl, said here yesterday he would propose to Kohl to ask German banks to contribute constructively to a solution to the foreign debt problem of the Indonesian private sector.

Kohler, who is leading a special German delegation here to assess Indonesia's economic situation, said finding a rapid solution to Indonesia's private offshore debt was of crucial importance in dealing with the economic crisis.

Foreign and local analysts have also said the recovery of the rupiah would depend largely on the handling of the country's huge private debt.

"Without such a solution, the Indonesian currency will decline further," Kohler said.

According to a government estimate, the offshore debt of the Indonesian private sector was US$65 billion as of September last year. Most of the loans were short-term debts with a maturity of between one and two years.

"News on further banking mergers is good, but since there is no clear solution to the private sector debt, the rupiah fell further," a chief dealer with a local private bank said.

Some analysts suggested the debt moratorium could be part of a solution to the country's mounting external debt.

"With that, Indonesian corporations will have enough time to restructure their debts," the dealer said.

Analysts said uncertainty about the country's future vice president also contributed to the rupiah's free fall.

"Investors are waiting for the announcement of the new vice president," one analyst said. He said President Soeharto's announcement that he was ready to be reelected was not strong enough to ensure jittery investors.

"Sporadic riots in small towns in East Java also put more pressure on the rupiah," a chief dealer with a local private bank said.

Dealers also attributed the weakened rupiah to Standard & Poor's report about the poor performance of the country's banking system.

According to the U.S.-based rating agency, Indonesia needs about $15 billion in fresh capital to cope with the sharp deterioration of the local currency.

As the rupiah fell, stock prices on the Jakarta Stock Exchange (JSX) rose 2.05 percent, supported by a late rally on banking stocks on expectations of more bank mergers and buoyant trading in blue-ship stocks, brokers said.

The JSX composite index surged 9.01 points to 448.03 yesterday from 439.01 the previous day with 498.91 million shares changing hands worth Rp 537.74 billion ($56.6 million). (aly)

German envoy -- Page 8

Currencies -- Page 9