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)