Revised state budget fails to amaze currency market

JAKARTA (JP): The government's announcement of a revised 1998/1999 draft state budget failed to wow the market as the rupiah continued its downward trend, touching to as low as 15,000 to U.S. dollar yesterday.

Stock prices on the Jakarta Stock Exchange (JSX) had a similar cool response to the revised budget, gaining a mild 1.7 percent on foreign institutional investors' selective buying of Telkom shares, stockbrokers said.

"The market remains cool after the government announced the revised draft budget yesterday as the market is largely concerned with the mounting private sector external debt," a chief dealer with a local private bank said.

The spot rupiah ended at 13,000/13,500 in Jakarta against an opening of 12,500/12,800 after nearly plunging to 15,000 during midday trading.

The rupiah opened in London at 15,100/15,800.

Dealers said the rupiah managed to recover after Bank Indonesia, the central bank, stepped in the market through state banks at 14,000, 13,000 and 12,750 levels yesterday.

"The central bank sold a limited amount of dollars for the rupiah. With thin trading volume and a wide trading band, small intervention proved to be effective to arrest the rupiah's fall," a dealer said.

The rupiah crashed to a historic low of 17,000 on Thursday before recouping to 12,000 at the close due to the central bank's intervention, dealers said.

Dealers said the central bank was seen in the market in the last three days to defend the rupiah from further attacks.

"But such intervention will not bear any fruit in the long term as the rupiah is already above 10,000. Persistent intervention will only result in a decline of the government's foreign exchange reserves," a state bank dealer said.

Most currency dealers attributed the persistent fall of the rupiah in the last few days to overseas players' continuing worries over the ability of Indonesian companies to pay their external debts.

"The private sector external debt is the key factor in the rupiah's continuous fall. Unfortunately, the government has not announced any concrete measures as to how to solve this crucial problem," the dealer said.

Indonesia has a total external debt of US$140 billion as of the end of 1997, with the private sector accounting for at least $66 billion.

The government has said it would help debt-ridden private firms negotiate with foreign creditors, but ruled out any corporate debt bailout.

As the rupiah sank, stock prices on the JSX rose higher with the benchmark index rising 7.45 points to close at 450.98 yesterday.

Over 362.34 million shares changed hands in the regular market valued at Rp 603.42 billion ($46.41 million).

"The rise in the stock price index is largely attributed to foreign institutional investors' heavy buying of Telkom shares," head of sales of BZW Niaga Securities Adnan Tan said.

"The increase of the index does not necessarily show that foreign investors' confidence has returned to Indonesia. Foreign investors are still cautious with the local market," he said.

Some analysts said there was no single listed company on the exchange which could still survive and operate with positive cash flow amid the fall of the rupiah.

"With the rupiah's exchange rate at over 10,000, most listed companies have technically gone bankrupt," an analyst who asked for anonymity said.

"It will be a story with a bad ending for listed companies in Indonesia," he said. (aly)

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