Rupiah books strong showing for second day

Rupiah books strong showing for second day

JAKARTA (JP): The rupiah booked a strong showing for the
second consecutive day on Wednesday ahead of President
Abdurrahman Wahid's key appearance at the House of
Representatives today.

The rupiah broke through the 9,000 level against the U.S.
dollar in morning trading amid reports of intervention by the
central bank.

But the Indonesian currency retreated in afternoon trading due
to corporate demand for American greenbacks. At the close of
trading, the rupiah was quoted at Rp 9,018 per U.S. dollar
compared to Rp 9,285 on Tuesday.

The local currency has been under strong pressure over the
past couple of weeks, plunging to a 21-month low of Rp 9,570 per
dollar last week, due to domestic political uncertainty.

Currency dealers said that investors, who had been in long
U.S. dollar positions began taking profits on Tuesday after the
rupiah failed to breakthrough the 9,570 level.

The change in market trend was incited by rumors that the
central bank had sold dollars through state banks to shore up the
ailing rupiah.

But dealers said reports that the government has met the
International Monetary Fund deadline for implementing key
economic reform programs were the most rational reasons why many
market players bought the Indonesian currency.

The slight rise in the interest rate of Bank Indonesia one-
month SBI promissory notes to 13.45 percent on Wednesday compared
to 13.11 percent last week also contributed to the rupiah's
strength.

Abdurrahman is scheduled to speak at the House of
Representatives on Thursday (today) to defend his recent
dismissal of Laksamana Sukardi and Yusuf Kalla from his coalition
Cabinet and the currency market clearly will be listening
closely.

Laksamana is an executive of the Indonesian Democratic Party
of Struggle, the largest political party, and Kalla is a member
of Golkar, the giant political party in power for the last 30
years.

Some analysts have said that if Abdurrahman's explanations
fail to satisfy angry and exasperated legislators, they might be
sufficiently incensed to begin the process of unseating the
President.

Abdurrahman is scheduled to meet with the People's
Consultative Assembly (MPR), the highest legislative body, in
August to give an account for his 10 months in power.

There have been fears that domestic political tensions will
increase in the run up to the August session, even though several
top politicians have assured that Abdurrahman would not be
impeached at the session.

Meanwhile, Finance Minister Bambang Sudibyo said on Wednesday
that the strengthening of the rupiah was purely a result of
market forces and not due to government intervention.

Bambang said that the President could not order Bank Indonesia
to intervene because Bank Indonesia is now independent of the
executive branch of government.

He expects the rupiah to further strengthen to the Rp 8,000
level, especially if Abdurrahman's appearance at the House goes
well.

But he admitted that the local currency would remain volatile
for the time being as the market is still adjusting to the
country's new democratic political climate.

"The market will understand after a while, and the rupiah will
strengthen again," Bambang said.

Separately, Coordinating Minister for the Economy, Finance and
Industry Kwik Kian Gie dismissed speculation that the government
was considering changing the current free floating foreign
exchange system in a bid to strengthen the ailing rupiah.

He said that Indonesia had not enough forex reserves to impose
a fixed exchange rate system, and even if it had, the government
would need agreement from the IMF to take such a drastic step.

He said no such plan was discussed at the recent meeting with
Bank Indonesia officials.

Bank Indonesia announced on Tuesday that the country's gross
foreign exchange reserves fell to US$27.31 billion in the week
ending last Friday, compared to $27.49 billion in the previous
week.

The rupiah's rebound was felt regionally, providing a mild
fillip for other Southeast Asian currencies.

In Singapore, the U.S. dollar fetched 44.52 Philippine pesos
in late trading, down from 44.64 a day earlier.

The greenback was also weaker at 1.745 Singapore dollars from
1.747, 40.175 Thai baht from 40.295, 1,112.100 South Korean won
from 1,112.135. But the international currency rose against the
Taiwan dollar to 31.034 from 30.938.(rei)