Rupiah hits another low but recovers

JAKARTA (JP): Despite Indonesia's strong economic fundamentals, speculators made more concerted attacks on the rupiah yesterday, pushing it to a record low and prompting the central bank to intervene to defend the currency.

Dealers said spot rupiah against the U.S. dollar dipped to a historic low of 2,650/55 yesterday morning from a 2,510/20 open before easing to 2,636/41 at 6:00 p.m. local time.

Following the plunge in rupiah, Jakarta share prices closed 1.6 percent lower yesterday on a broad based sell-off. The Jakarta Stock Exchange composite index fell 11.59 points to 712.40.

Bank Indonesia's Governor Soedradjad Djiwandono called on the people yesterday not to panic about the steep fall in the rupiah's exchange rate and not to join the rush to the American dollar.

"The people's purchasing power is not measured by the rupiah appreciation but by the inflation rate," Soedradjad told newsmen yesterday after attending the meeting of the Bankers Club Indonesia.

Dealers said the rupiah became the target of speculators yesterday after being spared previously when they focused on other regional currencies.

"They are trying to force the central bank to float the rupiah or at least widen the intervention band because they have been long on dollar and short on rupiah," a dealer with a local foreign exchange bank said.

"If they could force the Thai baht and the Philippines peso to devalue by more than 15 percent, why not the rupiah?" he asked.

Bank Indonesia on July 11 widened the dollar-rupiah intervention band, in which the rupiah can float before the central bank intervenes, to 12 percent from 8 percent, to avert speculative attacks.

Speculative attacks on the rupiah escalated early last week following the de facto devaluation of the Thai baht earlier this month and the Philippine peso on July 11.

A dealer of another foreign exchange bank predicted that the attacks on the rupiah would continue until Bank Indonesia, the central bank, or the speculators controlled the situation and made profits.

He said Bank Indonesia yesterday intervened in the market with some US$500 million through four or five brokers.

The central bank's intervention at midday stopped the rupiah from further dipping in afternoon trading.

An executive at publicly listed Bank Bira, Parveen Gandhi, predicted that speculative attacks on the rupiah would ease by next week and the rupiah would recover to below the 2,600 level.

"When I attended the Asian Debt Conference in Hong Kong last week, everyone I met there said the rupiah would survive the attacks as Indonesia's economy was in better shape compared to those of Thailand and the Philippines," Gandhi said.

President of the Manila-based Asian Development Bank Mitsuo Sato agreed and said that Indonesia should be eventually free from such speculative attacks considering its sound macroeconomic fundamentals.

"Of course, you are not entirely free from such attacks, but you are much better situated compared to other countries which had to devalue their currencies, including Thailand and the Philippines," Sato told journalists here yesterday.

"You are prudent enough to make exchange rate movement more flexible. That's very effective in coping with this question of currency attacks," added Sato who is here for a few days of visit.

Indonesia has less problems in its banking sector compared to other countries, he said.

Yesterday Sato met with Minister of Finance Mar'ie Muhammad, Bank Indonesia Governor J. Soedradjad Djiwandono and Coordinating Minister for Economy and Finance Saleh Afiff. He is scheduled to meet President Soeharto today.

Chairman of the Indonesian Issuers Association Rosano Barack called on local stock market players not to panic in reading the current development.

"They (speculators) are just bluffing. If we panic and buy dollars, then they will win... Let them buy dollars, but don't follow by buying dollars. Sooner or later they will get lost," Rosano said.

Speculators attacked the rupiah after they failed to attack the Indonesian stock market, Rosano said.

He said yesterday's drop in Jakarta stock market was caused mainly by the panic selling by retail investors who had little information on speculative attacks on the rupiah.

"That's only temporary, it will soon recover," Rosano said.

An analyst at Schroders Indonesia Securities John Rachmat agreed, saying the stock market was overreactive to the rupiah's plunging value.

He said foreign investors dumped stocks of companies which had large dollar-denominated debts. (alo/rid)

Editorial -- Page 4

Photo -- Page 10

Growth -- Page 11

Soedradjad -- Page 12