Rupiah falls again, share prices plunge

JAKARTA (JP): The Indonesian rupiah plunged again yesterday to a new record low against the U.S. dollar and Jakarta share prices followed suit, falling by almost 4 percent, analysts said.

Foreign exchange dealers said spot rupiah stabilized in afternoon trading at 2,900 against the American greenback.

They said the market lost direction following the floating of the rupiah Thursday. The trading spread widened from five points before the float to 40 points yesterday, exacerbating the fall.

Spot rupiah slumped to 2,960 in midday trading, from an opening of 2,770/2,910 and stabilized in afternoon trading to close at 2,880/2,910.

Dealers said nervous local investors joined the dollar-buying frenzy hedging their position, which contributed to the rupiah's steep fall.

"We all seem to have lost direction and become nervous. I don't know when this situation will end. But we hope the rupiah will soon reach its new equilibrium," said a local foreign exchange bank dealer.

He said the market was trading a bit thin because operators were reluctant to open new positions ahead of the weekend.

The fall in the rupiah dragged on the Jakarta stock market. Share prices on the Jakarta Stock Exchange, with composite index tumbling by 25.30 points or nearly 4 percent to close at 617.70.

Total turnover was 386.77 million shares on the regular market, worth Rp 537.77 billion (US$ 185.44 million).

Most stock brokers said yesterday's steep intraday fall was triggered by panic selling by investors as a result of the rupiah plunge.

"I think it's just a blue day for all investors and probably the blue week of the year due to the fall of the rupiah," said an analyst with a joint venture securities company who declined to be named.

Harita Securities' president Christina Lim said most of Harita's clients were advised to sell.

"Well, we advise them to stay away from the market until the rupiah stabilizes, except for certain cheap blue chip stocks" she said.

Adriansyah Chaniago, an analyst from Bahana Securities, said investors were confused with the current situation.

"Given the current situation, most foreign investors are running away from the market," he said.

"As long as the rupiah is still under attack, the stock market will not recover," he added.

State Minister of National Development Planning Ginandjar Kartasasmita assured the market yesterday that Indonesia's economy could withstand the float of the rupiah.

"We just follow market economic principles. And our economy is strong enough to face that (the floating of the rupiah)," Ginandjar told journalists at the Presidential Palace.

He said Indonesia's economic fundamentals were strong and foreign exchange reserves were sufficient to finance more than five months of imports. The country also had monetary tools at its disposal such as the open market operation, he said.

The minister reiterated that the decision to float the currency would not harm economic growth and the inflation rate target.

The government's move to float the rupiah was welcomed by the International Monetary Fund who praised Bank Indonesia, the central bank, for its action.

The fund said the move would allow the country's economy to continue its recent impressive performance.

Reuters reported that emerging market economists in London and New York were unanimous that Bank Indonesia had made the right decision in ending its system of managing the exchange rate via an intervention band in the face of speculative attacks.

U.S. investors and analysts generally agreed the Indonesian central bank acted wisely in floating the currency.

But Deutsche Bank Group's chief economist Norbert Walter said here yesterday the float would not solve any problem and suggested the government work on long-term solutions to strengthen the economy.

"Floating doesn't solve anything. It will only increase the cost of production and in the end it will go back to being uncompetitive with higher inflation," Walter said.

He suggested the government strengthen the financial sector, adjust the microeconomy using better fiscal policies and labor market and pursue less government intervention. (das/aly/rid)