Rupiah gains ground as stock prices fall further

JAKARTA (JP): The rupiah extended its gains on Tuesday, closing firmer at 8,825 against the U.S. dollar in very thin trading as the stock market continued its slide, falling nearly 1 percent.

Dealers said the rupiah opened at 8,825 and shot up to an intraday high of 8,775 in morning trading as certain offshore operators, particularly those from Singapore, sold their dollars for the rupiah.

However, persistent dollar bids by domestic commercial banks, apparently to either service their foreign debt obligations or to finance the importation of raw materials for their customers, capped any further advances by the rupiah against the dollar.

"Domestic dollar demands provided no more leeway for the rupiah to gain ground," a chief dealer with a joint venture bank said.

The rupiah closed the day's trading at 8,825, slightly stronger than the previous day's close of 8,900.

The governor of Bank Indonesia, Sjahril Sabirin, attributed the strengthening rupiah to the passage of political bills by the House of Representatives last week meant to pave the way for the general election in June.

Speaking to journalists before meeting with President B.J. Habibie on Tuesday, Sjahril also said that the government's clearer position on the bank recapitalization program provided support for the rupiah.

Sjahril also stated that the central bank was ready to defend the currency if it came under renewed attack by speculators.

Nevertheless, dealers warned that unresolved problems on the country's political and economic fronts, especially ahead of the general election in June, would further dampen the rupiah's already grim outlook against the American dollar.

A dealer with a local bank said the rupiah's thin trading volume, which stood below US$100 million on Tuesday, reflected the reluctance of offshore operators to enter the country's currency market.

"I suspect the rupiah will return to the 9,000 level and may weaken further, especially toward the end of this budget year in March," he said, pointing to the fact that the government had not yet secured the funding to plug the budget deficit in the coming fiscal year.

Unlike the rupiah, share prices on the Jakarta Stock Exchange (JSX) fell nearly one percent, with the JSX Composite Index falling 3.94 points to close at 405.16 on a total turnover of 162.33 million shares valued at Rp 183.77 billion.

Losers easily outdistanced gainers 41 to 31 with 85 stocks unchanged.

Stockbrokers attributed the second consecutive day of declining share prices to the absence of any fresh leads from the domestic market coupled with a general plunge in regional equity markets.

"Trading activities remained quiet for the whole day because most investors were reluctant to establish new positions," Vonny Juwono, an institutional sales broker with Trimegah Securindolestari, said.

Profit taking on certain blue chip stocks also weighed down market sentiment in the country's ravaged bourse, she added.

The head of sales at Bahana Securities, Andre Cita, said that lingering worries over social and security problems following deadly communal clashes in Ambon, Maluku, had discouraged foreign investors from entering the Indonesian market.

"Foreign investors view Indonesia as less competitive than any of the neighboring countries right now," he said, pointing out that groundless rumors of social unrest spreading to major cities across the country had kept market sentiment bearish.

Trimegah's Vonny said that the drastic fall of the daily average trading turnover to only Rp 100 billion on Tuesday from an average of Rp 400 billion several months ago indicated the loss of confidence by foreign investors in the country's stock market.

"And we still do not know if the country's crisis has bottomed out," she added. (aly)