Indonesia doubts paralyze Asian currencies
Indonesia doubts paralyze Asian currencies
SINGAPORE (Reuters): Asian currencies were stuck in well-worn territory yesterday as Indonesia remained in the hot seat and traders looked desperately for clues about the fate of the rupiah.
Uncertainty over whether Jakarta would go ahead with a currency board or some other system to stabilize the rupiah severely hampered activity in regional currency markets.
"All the flows are commercially driven. It's just been too choppy recently and banks are not willing to take positions," a European bank dealer in Singapore said.
"There are market rumors that Indonesia might implement a two- tier system to protect its own market...But that would just be a short-term way of dealing with the crisis," she added.
Thio Chin Loo, strategist at Banque Paribas, said in a daily report that a two-tier system was already effectively in place following the government's announcement that it would subsidize essential imports at a fixed rate of 5,500 rupiah to the dollar.
The market was also awaiting details of Indonesia's new cabinet, expected to be announced by the end of the week, and Japanese Prime Minister Ryutaro Hashimoto's visit to Jakarta.
Questions about the next disbursement of IMF money to the country and deliberations over its economic reforms added to the long list of reasons not to do anything, traders said.
News Indonesia would not be sending a delegation to the United States next week, as previously announced, but would be receiving a senior IMF team instead was shrugged off by the market.
"I guess the Americans don't want to spoil the austerity drive. It's cheaper for them to come to Jakarta than the other way around," said one dealer.
The World Bank's chief economist, Joseph Stiglitz, said he expected the IMF to show flexibility over Indonesia's currency board proposal.
His comments mirrored Indonesian Vice-President B.J. Habibie's remark in a Japanese newspaper interview that Indonesia was willing to consider an alternative to the currency board.
Elsewhere, the Malaysian ringgit and Singapore dollar benefited from U.S. investment houses reducing their long dollar positions.
But most dealers did not expect the ringgit to strengthen beyond 3.80 to the dollar and said the Singapore dollar's rise would be blocked at 1.6150 against its U.S. counterpart.
The Thai baht held up well but dealers said heavy corporate demand for dollars below 42.50 baht was slowing its rise as the market awaited developments from Prime Minister Chuan Leekpai's visit to the United States.
Deputy Finance Minister Pisit Leeahtam said Thailand planned to raise funds abroad by issuing government bonds in a month or two.
The Philippine peso was firm but sluggish as the central bank announced a series of changes including new statutory and reserve requirements and shortened time for banks to comply with general loan loss provisioning.
In North Asia, the Taiwan dollar ended lower as the yen slid amid mounting pressure on the Bank of Japan governor to resign due to a widening bribery scandal.
Chinese Foreign Minister Qian Qichen criticized Taiwan for devaluing its currency last October, saying it "added fuel to the flames" of Asia's financial crisis.
The South Korean won strengthened amid abundant dollar liquidity and traders said it could head for 1,550 to the dollar on stop-loss dollar sales.
The Hong Kong dollar was steady and forwards firmed on the yen's drop and position covering after three days of losses.