Rupiah falls below 10,000 after attacks on Afghanistan

Berni K Moestafa, The Jakarta Post, Jakarta

News of the U.S. attack against Afghanistan has crushed the rupiah's timid recovery, as market players fled to the dollar over fear of a backlash by radical groups protesting the strike.

Dollar hunters stormed the market on Monday trading, driving the rupiah beyond the 10,000 level against the U.S. dollar.

Bank Indonesia was seen coming to the rupiah's defense, which helped pulled down the unit from its intra-day low of 10,500.

By day's end, the rupiah closed down at 10,163 from Friday's closing at 9,825.

Analysts warned of further losses to the rupiah, if protests against the U.S. turn violent or drag on for too long.

Several hundred anti-U.S. protesters took to the streets of Jakarta in reaction to the overnight attack against Afghanistan.

Earlier, some local radical organizations had threatened to expel American citizens and attack the country's interests here, should the U.S. launch its military offensive.

Although the protests have so far been relatively peaceful, foreign investors remain wary of a reprisal against their assets by these groups.

The government has warned against such moves and at the same time assured investors of the safety of their businesses.

Last week, the rupiah took some reprieve from the fact that no violence had erupted because of the protests.

But the government now thinks that much of the rupiah's fate hinges on developments outside.

Coordinating Minister for the Economy, Dorodjatun Kuntjoro- Jakti said it was difficult to predict the rupiah's direction in the wake of the military strikes.

"It's hard to monitor the developments, as they are largely driven by a wave of speculation worldwide," he told reporters on the sidelines of a trade seminar.

Dorodjatun said market players turned to the U.S. dollar in a reaction he called "flight to quality".

At this moment, he continued, the global currency market was speculating on how long the war would last.

He said the wager was whether the United States could end the war before the Muslim fasting season begins in mid November.

Experts have warned that a prolonged war could undermine the fragile support of Muslim countries for the U.S. war campaign.

"Most players pegged exchanges rates to that period (mid November)," he said.

He said it would take about a week to assess whether the rupiah's drop reflected a downward trend or the market's short- term reaction.

Finance Minister Boediono said in this situation, intervention into the money market and hiking interest rates were ineffective.

"The best we can do is to maintain stability ... don't let outside developments affect domestic stability," he said.

But Bank Indonesia Governor Sjahril Sabirin vowed to continue to intervene, arguing foreign exchange reserves were adequate.

"Intervention will be done if we think it's helpful and necessary," Sjahril said.

He added there was no need to raise interest rates just yet.

On the stock market, the index has entered its fifth week of decline since last month's terrorist attack against the U.S.

Growing security concerns following the U.S. retaliation shoved the stock index up to 367.07 points from its Friday closing at 381.59.