Rupiah besieged
Yesterday, it was the rupiah which came under strong speculative assaults, driving it to a historic low of Rp 2,680 to the U.S dollar in afternoon trading, on the back of analysts' comments that the central bank might abolish or widen the currency's trading band.
On the previous day, the Singapore dollar dropped to a 37- month low of S$1.50. This wholly unexpected development was blamed by dealers on remarks by a monetary authority official that the Singapore dollar's level was appropriate with prevailing market trends. Earlier on Monday, similar attacks hit the Malaysian ringgit, pushing it to a 42-month low in a panic reaction to Malaysian Prime Minister Mahathir Mohamad's statement that he was happy with the ringgit's level.
There is actually nothing unusual or strange in those kind of remarks, which have been blamed by dealers and analysts for the fiercer assaults on the currencies. Such comments might have simply been discarded by the mass media as "stock statements". That should have been the case if the financial market condition was normal. But the Southeast Asian foreign exchange market has been in turmoil since early last month, depressed by the fallout of the de facto devaluation of the Thai baht. The market forces have largely been decoupled from underlying economic fundamentals.
These developments once again strengthen the message that in the current era of a globalized financial market a currency crisis in one country could set off a regional contagion through irrational expectations irrespective of the condition of economic fundamentals. Such a contagion breeds not on key economic indicators but largely on perceptions or market expectations which are in turn strongly influenced by information.
No wonder, in such an environment impregnated with irrational worries, officials in key positions should be extra careful about what they say or what they refuse to state. Seemingly innocent remarks could easily be misinterpreted by nervous traders. A refusal to answer reporters' questions could fire up the rumor mill because that could be taken as a deliberate act to hide something. Even reports on a news conference at the information ministry yesterday further worsened jitters about the rupiah as it was being held amid massive attacks on the currency.
Likewise, the manners in which the mass media treat stories on the events around the currency turmoil could mitigate or vindicate the irrational expectations of market developments. Set against this, we fully understand and support the appeal by Minister of Information Hartono yesterday that the mass media help calm down market jitters. True, until the dust of the currency turmoil settles down, the most influential factor in the currency market are public expectations which in turn are based on what they know or learn from mass media or hearsay.
However, restraint on the part of the mass media, though quite necessary, is not enough. Market analysts as the opinion leader for market players should also refrain from making comments that could strengthen irrational expectations.