Rupiah and stock markets recover

Rupiah and stock markets recover

JAKARTA (JP): The rupiah strengthened further yesterday rising
by 100 points against the U.S. dollar while the stock market
gained ground to break a six-day losing streak.

Dealers said spot rupiah, which opened at 2,845/2,855 against
the American greenback, dropped to 2,865/2,875 at midday but the
currency strengthened in the afternoon to close at 2,765/2,775.

They said foreign players still initiated dollar selling
yesterday and invested in short-term rupiah, which now offered
higher yield.

"Today is good for rupiah, but we must keep vigilant as they
invest in short-term rupiah. They can dump rupiah any time the
rates fall," a local bank foreign exchange chief dealer said.

The rupiah has been strengthening since the central bank's
shock increase of interest rates Tuesday hauling it off a
historic low of 3,045.

The central bank raised one-week bilateral Bank Indonesia
Certificates (SBI) to 20 percent from 10.5 percent, two to 22
percent from 11 percent, one-month to 30 percent from 11.625
percent and 3 to 28 percent from 11.5 percent.

The hikes have made it more attractive for investors to park
funds in rupiah, while discouraging speculators from borrowing.

Parveen Gandhi, an executive at publicly listed Bank Bira,
said the government had "shot the target correctly".

"We believe the government is on the way to achieving its
objective in stabilizing the rupiah," he said.

The Jakarta Stock Exchange also performed well yesterday, with
the composite index increasing 0.45 percent to close at 593.17
points -- the first rise since Aug. 12.

Stockbrokers ascribed the increase to a small measure of
confidence because of gains in the rupiah, but cautioned that the
sentiment was still overriding.

"The main factor behind the increase is the stability of the
rupiah in the money market," said Digby Falkiner, head of Morgan
Grenfell Indonesia's research division.

Many investors reentered the market yesterday for blue chip
stocks which had been oversold, Falkiner said.

Coordinating Minister for Economy and Finance Saleh Afiff said
the government would continue to maintain the current tight money
policy until the rupiah stabilized.

He said the government was still urging state enterprises and
their affiliates, including banks, insurance firms, pension funds
and foundations, to place their excess liquidity and investment
funds in SBIs.

Since Friday, state firms and their affiliates have withdrawn
over Rp 2 trillion from the banking system and invested them in
SBIs.

Bank Indonesia appealed for calm yesterday amidst rumors that
some banks had their fingers burnt in foreign exchange deals and
during clearing process.

"Don't be influenced by false rumors," Managing Director Paul
Soetopo said.

"The government will maintain the stability of the banking
system as an institution of trust. The public are expected to
support the government efforts," he said.

He said given Indonesia's strong economic indicators, "we're
confident that we can overcome the challenges facing us."

Banking analyst Laksamana Sukardi warned that the government's
all out effort to overcome the currency crisis by soaking rupiah
from the market would create a bank liquidity crisis.

Commercial banks faced liquidity problems after the central
bank drained excess liquidity from the banking sector, he said.

He said banks could not get rupiah easily from either
interbank, as the rates were already irrationally high, or from
short-term money market securities (SBPUs) as the central bank
still stayed out of the market.

"Most of them lend long, borrow short. So, when the liquidity
is tightened they would get in trouble for matching their
portfolio," he said.

Laksamana criticized the central bank's move as
counterproductive as this victimized the banking industry and the
people as a whole.

"In fact by doing this (raising SBI rates to cure the currency
crises), it sends the second wave of jitters. Laymen and small
firms, which previously did not know about the crisis, are now
fully aware of this," Laksamana said.

Laksamana said the central bank would soon ease rupiah
liquidity to help local banks breathe. Otherwise, people will
rush banks to withdraw their deposits.

"If the current bank liquidity crisis continues just for
another week, I'm afraid it will lead to another crisis, that is
bank run and corporate bankruptcy," he said.

Rumors spread yesterday that depositors rushed three local
banks, including the country's second largest private Bank
Danamon, to withdraw their deposits.

But Christiana M. Damanik from Bank Danamon said the bank did
not experience any rush and called the rumors baseless.

"All transactions with our clients run normally, with a slight
increase in foreign exchange deals as there is a rise in the
number of customers wanting to convert their rupiah deposits to
Primadollar or cash them in dollars," Christiana said.
(aly/icn/rid)

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