Tue, 07 Nov 2000

Lowering forward position limit an option, says Anwar

JAKARTA (JP): Bank Indonesia senior deputy governor Anwar Nasution said on Monday that lowering the maximum US$5 million open forward position was an option to help curb speculation in the rupiah.

But Anwar said the central bank had not yet reached a firm decision on whether to implement such a policy.

"We are still thinking this over. We'll see. There's nothing final yet, so it's not certain whether it will be lowered," he told reporters on the sidelines of the inauguration ceremony of the new chairman of the Indonesian Bank Restructuring Agency.

Anwar added that such a policy does not require any approval from the International Monetary Fund (IMF), which is providing the country with a multibillion dollar bailout.

Anwar was responding to earlier reports that the central bank was planning to cut down the limit on the open forward position.

Under the existing regulation, banks operating in the country can only hold an open forward position in the U.S. dollar/rupiah, at the maximum of $5 million, with any single overseas bank.

The rupiah has been under strong pressure lately, dropping by more than 20 percent from its level early this year.

The government and the central bank said last week that it would launch measures to curb speculation on the rupiah. The measures include strengthening the on-site supervision of banks active in foreign exchange transactions and monitoring nonresidents' rupiah accounts more tightly.

The statements made with regard to launching measures to curb rupiah speculation has been viewed by some in the currency market as plans to take some form of a currency control similar to that adopted by Malaysia.

Some say the IMF might finally allow Indonesia to launch such a drastic measure.

Bank Indonesia officials have repeatedly denied this.

News that the government and Bank Indonesia would launch measures to help curb currency speculation had helped strengthen the local currency.

The rupiah strengthened to Rp 9,075 per U.S. dollar during the day but declined again to Rp 9,160 late in the day, unchanged compared to Friday's close.

Dealers said the strong demand for U.S. dollars to repay corporate overseas debts had put pressure again on the rupiah.

Bank Indonesia officials admitted there had been a genuine demand for dollars to repay maturing corporate overseas debts which would amount to $1.6 billion this month and $3.5 billion in December.

The government has also blamed domestic political instability as another factor in causing the rupiah to fall. Some opponents of President Abdurrahman Wahid have stepped up pressure to force the President to step down as violence and unrest continued to grip several parts of the country.

The government has assumed the rupiah at Rp 7,000 per dollar in the current 2000 state budget and Rp 7,300 per dollar for the 2001 budget, but the local currency had been hovering at more than Rp 8,500 over the past several months.

Meanwhile Dow Jones reported that other Asian currencies were mostly higher against the U.S. dollar on Monday, led by a sharp rally in the Philippine peso and healthy gains on most regional stock exchanges.

The dollar's weakness following the European Central Bank's intervention last Friday to boost the euro, also aided the rise in most regional currencies.

In Manila, the peso rallied by as much as three pesos against the dollar, or nearly six percent, on reports in the Singapore and Philippines press that President Joseph Estrada and former president Cory Aquino - one of the leaders leading the anti- Estrada movement - were in talks over his early resignation.

Meantime, the Singapore dollar was slightly higher against its U.S. counterpart in Asia late Monday, though it gave up some of its gains late in the session after local corporations bought the U.S. currency when it dipped briefly below the S$1.7300 level.

Around 0836 GMT, the U.S. dollar was trading at S$1.7315, down from S$1.7339 late Friday in Asia.

In Seoul, the won closed higher against the dollar on a marginal easing of investor concerns about ailing Hyundai Engineering & Construction Co. and Daewoo Motor Co., dealers said.

The dollar dropped as low as 1,131 won early in the session.

In Asia late Monday, the dollar finished at 1,132.70 won, down from Friday's close of 1,133.60 won.

In Taipei, the New Taiwan dollar finished higher against the U.S. dollar on local currency buying by foreign equity investors and on U.S. dollar selling by Taiwanese exporters, dealers said.

At 0800 GMT (3:00 a.m. EST), the U.S. dollar ended at NT$32.149, down from NT$32.196 Saturday.(rei)