Rupiah hits historic low as stock prices lose ground

JAKARTA (JP): The rupiah hit a historic low of 7,750 to the U.S. dollar in the morning trading session yesterday before recovering to 6,950/7,250 at the close on aggressive dollar- buying by state-owned banks.

As the rupiah recovered, stock prices on the Jakarta Stock Exchange (JSX) lost ground as most players were greatly concerned with the persistent decline of the rupiah in the currency market over the past few days, stock brokers said.

Currency dealers said the rupiah sank into unchartered territory due to a regional market decline and heightened social and political anxieties approaching the People's Consultative Assembly meeting to elect a new president and vice president in March.

The spot rupiah closed at 6,950/7,250 in Jakarta against an opening of 7,000/7,200 in the morning session.

The rupiah has lost about 66 percent of its value against the dollar since early July.

Dealers said most players were in a panic after the rupiah broke 7,500 in the morning.

"It 's just a crazy market with a daily 10 percent decline over the past few days," a chief dealer with local private bank said.

"Demand for the dollar by local companies has declined today (yesterday) and some investors have been seen selling dollars for profit taking," the dealer said.

"Nobody expected the rupiah to fall to 7,750," another dealer said.

Most dealers said volume remained thin with a limited dollar supply in the market.

"The market remains thin and weak and there is no positive news to shore up the rupiah," the dealer said.

Dealers said Bank Indonesia, the central bank, was not seen in the market because previous intervention efforts failed to shore up the rupiah.

"It's quite difficult for the central bank to intervene in the market as the entire regional market has declined. Central bank intervention might be effective if it's only the rupiah that declines," a dealer said.

Dealers and economists also attributed the rupiah's persistent fall to worries over the President's health after doctors advised him to rest in December in the wake of an exhausting foreign tour.

Economist Laksamana Sukardi said yesterday the persistent fall of the rupiah would result in major corporate bankruptcies in Indonesia.

"If the rupiah continues to fall against the American dollar, many companies will collapse as they cannot finance the import of raw and supporting material," Antara quoted him as saying.

He also feared the continuing fall of the rupiah would result in layoffs and a decline in production at most industrial companies.

Dealers and economists urged the government to launch major political and economic reforms to heal the country's ailing economy.

"To come out of this crisis, the government should make major economic and political reforms, including transparency in the succession issue," Laksamana said.

As the rupiah recovered, stock prices on the JSX fell sharply by 2.08 percent.

"The rupiah is the main indicator for stock prices and there will likely be no improvement in stock prices in the first quarter this year," an analyst with Sigma Batara said.

Other analysts said with stock prices on the JSX already at bottom levels, now would be the right time for foreign investors to buy.

"But foreign investors are still worried about the political and social situation in Indonesia," an institutional broker of Trimegah Securities said.

Stock brokers said widespread rumors about a government plan to cut the value of the rupiah also put pressure on the declining stock prices.

The JSX composite index closed 8.57 points lower at 402.27 yesterday with about 378.42 million shares changing hand in the regular market valued at Rp 406.27 billion (US$58.03 million). (aly)