Rupiah declines on worries anti-government rally will turn violent

JAKARTA (JP): The rupiah plunged on Thursday on fears that a widespread rally against the newly approved security bill would turn into total chaos.

Currency dealers and analysts said that reports of a trade in gunfire between Indonesian soldiers and multinational forces in the troubled East Timor also attributed to the rupiah's plunge.

The rupiah lost about 4.5 percent to end the day at 8,745 against the U.S. dollar compared to Rp 8,370 on the previous day's close.

"During mid-morning trading, players started profit taking every time the greenback moved toward 8,500," he said.

But reports that the police had opened fire to disperse the protesters trying to get into the House of Representatives building, plus the reports of gunfire between Indonesian soldiers and peacekeeping forces in East Timor dragged down the Indonesian currency.

State banks intervened in the market by selling moderate amounts of dollars, but it did not continue for long, the dealer said. "But it was too little to affect the market," he added.

"We need good news tomorrow (Friday). I don't understand why the House members approved such an undemocratic bill," he said, adding that the newly approved bill had ruined investors' confidence.

The state security bill -- in which a state of emergency can be declared -- gives the military the power to ban protests, take over telecommunications systems, private property and mail services, while ignoring all prevailing laws.

Reports claim the UN peacekeeping force in East Timor and Indonesian soldiers traded gunfire due to a misunderstanding.

Bank Indonesia Governor Sjahril Sabirin said he expected the rupiah to rebound after the International Monetary Fund and the World Bank resume their US$43 billion loan package to Indonesia.

Discounting the effects of Thursday's domestic tension, Sjahril said he was optimistic the multilateral lending agencies would lift their loan suspension after their meeting, which will begin this weekend in Washington.

"The rupiah should strengthen as soon as the IMF and the World Bank lift the suspension on loans to Indonesia," Sjahril said.

The multilateral agencies decided to suspend the disbursement of the next tranche of the aid package following the country's poor handling of East Timor and the Bank Bali scandal.

The pressured rupiah also dragged down local share prices, with the Jakarta Stock Exchange (JSX) Composite Index falling 3.2 percent to close at 528.172 points.

Volume was estimated at a low 208 million shares valued at Rp 462 billion.

Traders continued their selling following the student demonstration, which later resulted in a clash between students and police outside the legislative building.

Dealers said the poor sentiment in JSX was also due to the crisis in East Timor and uncertainties surrounding the resolution of the Bank Bali scandal. (udi)