Political factors pull the rupiah down to Rp 9,435

JAKARTA (JP): Strong pressure on the rupiah persisted on Thursday amid continuing disquiet over domestic political uncertainty.

The local currency ended lower at Rp 9,435 per U.S. dollar in late trading on Thursday, compared to Rp 9,405 per dollar the previous day.

At one point during the day the rupiah plunged to a 21-month low of Rp 9,580 per dollar, but traders said that dollar selling by state banks had prompted investors to take profits in the afternoon.

Analysts said that the currency market was still edgy about the country's political developments.

They pointed out that the cancellation of a planned meeting on Wednesday evening between the country's top four political leaders of President Abdurrahman Wahid, Vice President Megawati Soekarnoputri, Speaker of the People's Consultative Assembly (MPR) Amien Rais and Speaker of the House of Representatives Akbar Tandjung had raised concerns that the political scene would remain tense in the run up to the crucial MPR general session in August.

Communal clashes and social unrest in general have been plaguing the country.

There has been speculation that the rupiah could gradually weaken and break the Rp 10,000 level ahead of the MPR congress, at which the President will deliver an account of his one-year old administration.

Traders also said comments by Bank Indonesia senior deputy governor Anwar Nasution earlier in the day that the central bank had no plans to force exporters to bring their dollar earnings home or to impose some kind of restriction on foreign exchange transactions had encouraged currency players to hold onto their dollars.

Earlier there was talk that Anwar would announce such measures at a meeting with executives of foreign banks here on Thursday.

But Anwar said that it was purely a "regular meeting" aimed at ensuring bankers commit to prudential banking regulations, and that there was no threats made against foreign bankers.

He dismissed a report in a local newspaper that Bank Indonesia had threatened foreign banks here for engaging in currency speculation.

Anwar, however, said in the afternoon after meeting with senior economic ministers that the central bank was studying the possibility of introducing measures to limit the space for currency speculators to carry out their activities.

He declined to provide details.

"Let's just wait. We're still studying it," he said.

He also declined to comment on whether the current weakening of the rupiah was due to large-scale speculation.

"That's why we are making the study," he said.

But Anwar appealed to the public not to rush to blame foreign banks, including those in Singapore, and hold them responsible for the plunge of the rupiah.

He said that the current weakening of the rupiah was largely due to domestic political uncertainty, the remaining problems with the country's banking system and the slow progress of corporate debt restructuring.

Anwar said that foreign banks had actually helped the country's real sector by channeling working capital as domestic banks had been unable to perform their intermediary role.

"Foreign banks have made a positive contribution to our economy. Without them it would be impossible for our real sector to move," he said.

Against other Asian currencies, the dollar slipped to S$1.7424 from S$1.7427 the previous day, and 44.67 Philippines pesos from 44.68

The greenback also fell to 40.025 Thai baht from 40.115. (rei)