Neighbors asked to help rupiah

Neighbors asked to help rupiah

SINGAPORE (Agencies): The acting governor of Bank Indonesia
has asked Singapore and other neighboring countries to provide
technical assistance in shoring up the embattled rupiah.

Anwar Nasution said on Thursday that Bank Indonesia's request
pertained to stricter supervision of foreign exchange trading
regulations, which could curb speculative attacks on the rupiah.

Recently, Bank Indonesia dispatched supervisors to the dealing
rooms of domestic and foreign banks in Jakarta to oversee the
implementation of trading rules and regulations.

Nasution, in Singapore for a regional central bankers'
conference, said the recent move to step up monitoring of forex
trading at banks in Jakarta was not aimed at imposing capital
controls.

Nasution said he had asked the region's central banks to
ensure that banks in their own countries complied with local
rules on currency trading with an eye toward deterring
speculation against the rupiah.

"Higher compliance will help stabilize the rupiah," he said.

He repeated that Indonesia won't impose capital controls to
shore up its currency, and that it doesn't favor a currency-board
system.

Nasution said Bank Indonesia believes the level of the rupiah
should be set by market forces in a well supervised trading
environment.

"We believe in free market, but we want a well supervised
market like (what) Singapore (has)," he told reporters after a
speech at a two-day regional conference on central banking which
began in Singapore Thursday.

Replying to a question on whether he had recently met with
officials at the Monetary Authority of Singapore to discuss Bank
Indonesia's request for technical help to curb currency
speculation, Nasution said one of his deputies had met MAS
officials earlier Thursday.

He said the repayment of the next installment of Indonesia's
foreign debt won't hurt the rupiah as the country has ample
foreign exchange reserves.

"It is rumored that around US$800 million is to be paid, but
according to my calculations it is less than $200 million,"
Nasution said.

"Our external reserves are more than adequate to meet the
obligations," he said, adding that Indonesia currently had around
$29 billion in gross foreign exchange reserves.

Nasution said he expects the rupiah to strengthen beyond 8,500
to the U.S. dollar "once we restore confidence and avoid the
panic" in the financial markets. At 1056 GMT the U.S. dollar was
trading at Rp 8,988.

Indonesia's currency woes mostly stemmed from fears of
political uncertainty, and these fears were beginning to ease.
"There is no plan to impeach the president, so why should we
worry?"

The central banker said Indonesia's economy is expected to
grow by 3 to 4 percent this year on the strength of high global
oil prices, healthy non-oil exports and a recovering domestic
economy. "The economy is humming," he said.

Oil and commodities are Indonesia's top exports.

Nasution said Indonesia would sign its latest letter of intent
with the International Monetary Fund on Monday. It periodically
needs to sign such letters as part of a US$5 billion bailout
package.

The signing of the letter of intent would pave the way for the
release of the next tranche of IMF loans of around $400 million.
Nasution said he expects the IMF will likely release next loan
tranche by "late August".

Rupiah

On Indonesia's currency, Nasution said the rupiah should not
weaken further based on fundamentals, but analysts say political
risk outweighs them as a factor.

He added that the rupiah should be at "less than 9,000 per
U.S. dollar", given Indonesia's good exports and capital inflows.

The rupiah has been hit by protracted political uncertainty,
with the market increasingly nervous ahead of next month's
meeting of the top legislature, when President Abdurrahman Wahid
is due to account for his rocky first year in office.

The rupiah, which fell to 16-month lows of 9,570 per dollar
last week, was quoted at 8,975 at 0736 GMT, against 8,980 soon
after Nasution's comments.

Several analysts agreed.

"Fundamentally, the rupiah should be stronger," said Bhanu
Baweja, senior economist at IDEAglobal.com.

"The reason I wouldn't go long is that fundamentals don't
matter. It's trading on a political risk premium."

IDEA said a level beyond 9,000 looked untenable, and other
analysts said a return to 9,200 was at hand.

"The rupiah is subject primarily to political risk," said an
economist at a foreign brokerage, adding that factors such as
Indonesia's trade surplus and economic restructuring were not
registering.

Indonesia posted a $2.47 billion trade surplus in May, and a
recent Reuters poll forecast a full year level of $26.7 billion.

"We've been revising our estimates lower and are looking 9,200
over three months," said the economist.

"Even if President Wahid remains, what kind of cabinet will he
have? Will there be a cohesive administration?"

IDEA's Baweja said in such a climate Nasution has tried to
hammer the market with word and deeds.

"The acting central bank governor is keen on letting the
market know who's boss," he said. "There has been verbal and
actual intervention."

Bank Indonesia has used interest rates to support the currency
as well, and last week said rates would fall to 12 percent from
about 13.5 percent now.