Rupiah hits 11-month high at 8,605

Rupiah hits 11-month high at 8,605

JAKARTA (JP): The newly installed government continued to keep
market players under its spell as the rupiah broke, for the first
time this year, the 9,000 level on Monday, ending at an 11-month
high over confidence in President Megawati Soekarnoputri's
Cabinet, analysts said.

The local unit ended Monday trading at 8,605 against the U.S.
dollar, surging from its previous close of 9,100.

SG Securities Pte. Ltd. research director Lin Che Wei said
growing international support, especially from the United States,
had instilled confidence in the money market.

"We're seeing an improved relationship with the United States
that goes beyond anyone's expectation," Che Wei told The Jakarta
Post.

Last Saturday, visiting U.S. Trade Representative Robert B.
Zoellick met President Megawati, reiterating support of the
world's largest economy for the new government.

Zoellick brought with him an invitation from U.S President
George W. Bush for Megawati to go to Washington.

The next day, Australian Prime Minister John Howard became the
first foreign head of government to meet Indonesia's new
President.

Che Wei said with that much attention, the market expected
Indonesia's economic recovery to accelerate.

Analysts said Indonesia was close to securing a deal with the
International Monetary Fund that would help entice the inflow of
much-needed foreign investment.

Another reason for the rupiah's surge, Che Wei continued, was
the market's belief of a government determination to meet this
year's budget targets.

That implied keeping the average exchange rate at 9,600, as
stipulated in the 2001 state budget, he said.

"But from last January to Megawati's rise to the presidency in
July, the rupiah hovered at around 10,500," he said.

To meet the budget target, he went on, the government had to
keep the rupiah at around 8,400 throughout the rest of the year.

That job would fall largely to the central bank through its
monetary policies, he said.

Given current market optimism, Bank Indonesia should be more
willing now to intervene, he said.

"It (Bank Indonesia) thinks if it doesn't intervene now, it
will lose momentum and intervention will become more expensive,"
Che Wei said.

According to him, Bank Indonesia has already been seen
intervening in the past few days.

Market players, he said, were reluctant to go against the
flow, knowing they would face Bank Indonesia.

"The question is, at what level will the rupiah stabilize?"
Che Wei said.

Bank Indonesia deputy governor Miranda Goeltom estimated the
rupiah would continue strengthening in the near future.

According to her, the local unit could stabilize at between
8,000 to 9,000.

Che Wei said further that figures like Coordinating Minister
for the Economy Dorodjatun Kuntjoro-Jakti and Finance Minister
Boediono were likely to rule the budget with strict discipline.

"The market sees them as ministers who would go ahead even
with unpopular measures for the sake of the budget," he said.

Among those measures have been raising the tax base, hiking
fuel prices to cut subsidies, and pressing ahead with
privatization, despite hurting nationalistic sentiment.(bkm)