Rupiah hits 11,500 against dollar as politics heat up

JAKARTA (JP): The rupiah plunged on Monday to an intraday low of 11,500 against the U.S. dollar amid growing political concerns as thousands of students took to the streets to demand President Abdurrahman Wahid resign.

But the rupiah recovered somewhat to end the day at 10,500 against the dollar, as Bank Indonesia intervened in the money market and the government decided to delay an increase in fuel prices until October.

The Jakarta Stock Exchange (JSX) composite index took a beating from the rupiah's plunge, closing at 396.61 from 414.11, its lowest level in two years.

Bank Indonesia Governor Sjahril Sabirin said the central bank would continue to intervene in the foreign exchange market.

"We are ready to do whatever it takes, be it through intervention or interest rates hike," Sjahril said.

The rupiah opened trade on Monday amid increasing political worries, as some 10,000 students gathered in front of the presidential palace to demand Abdurrahman resign.

Although the rally was peaceful, it recalled former president Soeharto's fall in the face of massive student protests.

But Abdurrahman's announcement that the fuel price hike, slated for April 1, would be delayed helped defuse the situation and allowed the rupiah to rebound.

Further intervention by Bank Indonesia pushed the rupiah up to 10,500 against the dollar from its opening of 10,090.

Sjahril said Bank Indonesia might consider increasing the amount of money it spent intervening in the foreign exchange market, despite the country's thin foreign exchange reserves.

He said further intervention would not hurt the country's foreign exchange reserves, which stood at US$29 billion gross, or $18 billion net.

But he admitted it would be difficult to bring the rupiah back up to 7,000 against the dollar. "If we can bring it to below the 10,000 level than that is already positive," he said.

Bank Indonesia deputy governor Miranda Goeltom confirmed the central bank had intervened in the money market on Monday to lift the rupiah from the 11,000 level.

"We intervened a lot today," she said, but refused to state the amount of U.S. dollars the central bank sold in defending the rupiah.

She added that Bank Indonesia also raised its overnight interest rate by 50 basis points to 12.125 percent.

The move is expected to make the rupiah kept at the central bank more attractive and discourage the purchase of U.S. dollars.

Sjahril and Miranda's vow to continue defending the rupiah contradicted earlier comments by Bank Indonesia senior deputy Anwar Nasution, who said intervention was futile.

According to Anwar, Bank Indonesia's position was too weak to intervene because of its thin foreign exchange reserves.

He added that intervention could not offset the noneconomic factors dragging the rupiah down.

"At present, intervention by Bank Indonesia would be like pouring water on sand," he said.

Instead, he urged a political reconciliation to allow Indonesia's economy to resume its path to recovery.

Separately, House of Representatives Speaker Akbar Tandjung said a "political solution" might be needed to prevent the currency from sliding further.

"If Bank Indonesia says it is futile to intervene because the causes (dragging down the rupiah) are noneconomic, we can understand that," Akbar said in response to Anwar's comments.

Akbar said within the next few days he would summon Bank Indonesia and government officials to discuss the rupiah. (bkm)