Rupiah falls to lowest level in two years

Rupiah falls to lowest level in two years

JAKARTA (JP): The rupiah dropped on Monday by 2 percent to its
lowest level since October 1998 amid worsening ethnic violence in
Central Kalimantan and problems with the International Monetary
Fund.

The rupiah ended at Rp 9,830 per U.S. dollar late on Monday
from Rp 9,685 on Friday, foreign exchange dealers said.

Bank Indonesia senior deputy governor Anwar Nasution pledged
that the central bank would intervene in the market to help
prevent the local unit from exceeding the Rp 10,000 level.

"We will continue to intervene in the market but we should
also address the main problems, the unrest and political
problems," Anwar was quoted as saying by Reuters. "Of course we
hope we can stabilize the rupiah below 10,000."

Around 270 people have been killed in ethnic violence in
Sampit, Central Kalimantan. The week-long violence has added
jitters to a financial market already edgy by reports of
worsening relations between Indonesia and the IMF.

Dealers said that the drop in the local currency was also
driven by strong corporate demand on dollars to repay overseas
debt.

Dow Jones news wires quoted dealers as saying that genuine
corporate demand early in the day emerged around Rp 9,725 to Rp
9,775, prompting other participants to cover their short dollar
positions. This triggered stop-loss dollar buying around Rp
9,800, which pushed the dollar to as high as Rp 9,865, they
added.

The rupiah had dropped to as low as Rp 9,865 earlier on
Monday, but found temporary respite when state banks sold
dollars, probably on behalf of the central bank, and as
commercial banks locked in profits, dealers said.

Dealers also said that the market was nervously awaiting for
the result of last week's high-level talks between Coordinating
Minister for the Economy Rizal Ramli and the IMF in Washington.

Relations between the government and the IMF had dropped to
its lowest level after the Fund delayed the disbursement of its
next US$400 million loan installment to Indonesia. The delay was
made due to concerns over several issues including the
government-proposed amendment to the central bank law, a poorly-
designed fiscal decentralization policy, and delay in the sale of
government ownership in Bank Central Asia and Bank Niaga.

The disbursement of the IMF money is seen as a key factor to
help maintain investor confidence in the economy, and to open the
way for other multilateral donors to provide their assistance to
Indonesia.

Rizal said in a press conference late on Monday that the
government and the IMF had reached an "agreement" over the
difficult issue of the central bank law amendment, paving the way
for the Fund to proceed with the review of the country's economic
reform program and the disbursement of its loan.

The rupiah had been relatively steady in the past month
despite increasing political uncertainty triggered by the
legislature's censure of President Abdurrahman Wahid over alleged
involvement in two financial scandals. The censure could lead to
a process of impeachment.

The new foreign exchange ruling introduced by Bank Indonesia
in the middle of January helped to maintain the stability of the
local currency.

The new forex ruling basically bans rupiah transfers to
nonresidents and cuts down the limit of forward transactions
between onshore banks and nonresidents from Rp 5 million to Rp 3
million in a bid to help curb speculation against the rupiah.

But experts said that the restrictions had only served to slow
down the rupiah's descent - and not halt it - as onshore dollar
demand remains strong, and domestic economic and political
problems persisted. (rei)