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)