Rupiah breaks 12,000 barrier on political concerns

JAKARTA (JP): The country's seemingly never-ending political woes sent the rupiah through the important barrier of 12,000 against the U.S dollar, as the market scooped up greenbacks ahead of a special plenary session of the House of Representatives next week.

From its Wednesday close at 11,975, the rupiah touched an intraday 31-month low of 12,300, before it finished off Thursday trading at 12,100.

Forex dealers attributed the plunge in the rupiah to panic buying by corporations and individuals amid fears of possible chaos during the session which would likely issue a second censure against President Abdurrahman Wahid.

"The fundamentals don't matter anymore, its psychological ... panic," a dealer at a foreign exchange bank explained.

He said he saw large orders to buy the dollar at the 11,800 level, and noted that Bank Tokyo Mitsubishi had been hunting large quantities of dollars over the past few days.

The rupiah has been trading dangerously close to the 12,000 level for days now on fears that the capital may witness an outbreak of anarchy when legislators meet on Monday for a special plenary session.

Supporters of the President have begun entering the capital in large numbers to protest on Monday against the plenary session.

The purpose of their coming to Jakarta is a mass prayer meeting on Sunday organized by Nahdlatul Ulama (NU), an organization which President Abdurrahman led for 15 years.

It is feared that pro- and anti-President Abdurrahman Wahid supporters may clash if the plenary session issues a second memorandum against him, as it is widely expected to do.

Such a second memorandum would bring President Abdurrahman closer to impeachment.

The dealer said that banks seeking to secure their dollar loan provisions were also caught up in the panic. These banks, he said, were trying to keep their non-performing loan (NPL) level at the required 5 percent for this year.

"The fact is, however, that most bank's NPLs are in double digits," he asserted.

On the other hand, he said, some corporate buyers had stopped purchasing the foreign unit because they deemed it too expensive.

For today, the dealer expected the rupiah to remain in a trade band of between 12,000 and 12,300 against the American greenback.

He said that ahead of the weekend, most people felt comfortable holding a long dollar position, or at least having squared it.

Currency analyst Lin Che Wei at SG Securities Pte Ltd said the weaker rupiah fitted in with the market's concerns over the economy.

"The weakening of the rupiah has created a spiraling effect; a vicious circle," he explained.

He said that each time the economy deteriorated, the rupiah took another plunge, which in turn deepened the economic woes.

He cited the gaping state budget deficit as a major worry that was keeping pressure on the rupiah.

A wider than predicted budget deficit has forced the government to revise its revenue and spending targets to keep the deficit at 3.7 percent of Gross Domestic Product (GDP).

The revision is also a key requirement for the International Monetary Fund (IMF) to disburse its $400 million loan package, aimed at plugging such budget holes.

Many observers consider the revisions to be unrealistic.

Che Wei said his source in the finance ministry told him that the IMF was, in fact, not happy about these targets.

Separately, finance minister Prijadi Praptosuhardjo said that the weaker rupiah had made revising the budget difficult.

"Yes, the sharp fluctuation is a major obstacle," he said.

Prijadi also denied plans to order the Indonesian Bank Restructuring Agency (IBRA) to sell of its dollar reserves.

IBRA chief Edwin Gerungan said the agency would sell its dollars in accordance with the government's financing needs. (bkm/rei)