IMF talks, BI intervention prevent rupiah fall
JAKARTA (JP): The rupiah dropped to 3,625 against the U.S. dollar at midday on the downgrading of Indonesia's foreign and local currency rating, but then recovered in the afternoon, currency dealers said yesterday.
They said the lowered rating by Standard and Poor's on Saturday had pushed the rupiah down only temporarily as the currency had been guarded not only by Bank Indonesia, but also by the International Monetary Fund (IMF).
The rupiah opened at 3,530/60,lower than Friday's close of 3,355/65, and continued to weaken to 3,625 but recovered in the afternoon and closed at 3,470/80.
"I think it is this downgrade rating which has forced the rupiah to weaken against the American greenback, though only temporarily," a dealer said.
Standard and Poor's lowered Indonesia's long-term foreign currency rating to triple-'B'-minus from triple-'B' and long-term local currency rating to single-'A'-minus from single-'A'-plus.
A currency dealer said that the rupiah recovered yesterday because Bank Indonesia, the central bank, intervened in the market.
"The central bank made a rate check yesterday by selling some dollars when the rupiah reached 3,490," a dealer said.
He said the impact of the central bank was small because it only sold a limited amount of dollars.
Economists and analysts in Jakarta said talks between Indonesian officials and IMF teams had corrected the rupiah's fall as the market was waiting for the IMF financial package.
There were some talks yesterday on the content of the financial package by the IMF, the World Bank and the Asian Development Bank to restore market confidence in the Indonesian economy.
The World Bank country director for Indonesia, Dennis de Tray, said yesterday that it was still too early to say "what the financing side of the package will look like".
"One needs to keep in mind that the aim is, one, to provide whatever additional financing the government may need, and, two, to rebuild confidence," de Tray told Reuters.
Currency dealers said yesterday that the overall sentiment in the market had improved after the government decided to seek assistance from the IMF, the World Bank and the Asian Development Bank to restore market confidence.
Dealers said that the market had gradually recovered since last week even though there was not an immediate announcement on the package from the IMF.
The stable rupiah positively affected share prices on the Jakarta Stock Exchange (JSX), with the main price index rising marginally by 0.01 percent to 534.82 points yesterday.
Total turnover was 395.3 million shares on the regular market valued at Rp 501.5 billion (US$143.28 million).
The head of research at Trimegah Securities, David Chang, said the long-term foreign currency rating downgrade by Standard and Poor's also had an impact, though temporarily, on stock trading activities.
"I think most companies in Indonesia have already realized its condition in the face of the currency crisis. What is more important now is how the Indonesian government tackles it," he said.
He praised the government's decision to seek financial help from international institutions to help solve the problem, which sent a good signal to the stock market.
Stock prices rose marginally yesterday as the market responded to the government's IMF move, Chang said.
"The market has not responded negatively to the seeking of financial help from the IMF," he added.
He predicted that the IMF -- along with the World Bank and the Asian Development Bank -- would not impose strict conditions on Indonesia because it had seen Indonesia as having sound macroeconomic management compared to neighboring Thailand and the Philippines. (aly)