Rupiah hits new low against dollar as share prices fall

JAKARTA (JP): The rupiah hit another low yesterday surpassing the 3,000 level against the U.S. dollar as share prices slumped 3.2 percent, dealers said.

Spot rupiah, which opened at 2,930/45, plunged to 3,005 at midday trading before recovering to 2,970/2,995 at yesterday's close.

But dealers said volume was thin yesterday, trading in one or two million dollars, from tens of million dollars in previous weeks.

One local foreign exchange bank dealer said he only saw some dollar buying by local companies with selling done mainly from offshore, especially Singapore.

"People do not want to enter the market this time as the risk is so big. When rupiah falls 100 points like today, it can also rise easily by the same extent. It's just too risky to trade now," he said.

State-owned Danareksa Securities' economist Rino Agung Effendi said the market was already irrational, buying the greenback while the rupiah was already way undervalued.

Rino said the fair value of the rupiah, based on Danareksa's calculation, should now range between 2,700 and 2,800.

"I just don't understand why rupiah was traded at the 2,900 level here when rupiah was quoted at 2,700 in New York. Why do investors in New York have more confidence in the rupiah than local investors?" he asked.

At the Jakarta Stock Exchange, share prices dropped 2.3 percent yesterday, with composite index closing 19.928 points lower at 597.778.

Stock dealers said the index dropped 35.187 points to 582.512 during the lunch break after descending 49 points to 565.78 in the morning session. The rebound was generated by massive buyings by state pension funds, analysts said.

Stock analysts attributed the fall to the unclear direction of the rupiah.

Market sentiment was darkened by a fall of 247.37 points, or 3.1 percent, to a seven-week low of 7,694.66 by the Dow Jones Industrials Average on Friday, the largest decline since the October 1987 crash, they said.

"The fall has been across the region. But this is just another nightmare for the Jakarta Stock Exchange," said a broker with a joint-venture securities firm.

Lippo Securities' senior vice president David P. O'Neil said most investors made a panic selling on stocks resulting in the drop of share prices on the exchange.

"I think it's just a purely short-term negative sentiment which affects the sharp fall in the market," O'Neil said.

O'Neil said stocks like Fiskar Agung, Telkom, Indosat and Davomas had strong fundamentals and were already cheap.

"The current condition is already a good time to pick up several selected stocks with cheap prices in the market," he said.

Deregulations

Rino and industrial analyst Raden Pardede, also from Danareksa, said the government needed to address investors' concerns to help stabilize the rupiah and revive the stock market.

They said investors were waiting for the government's concrete actions to reduce distortions in the economy after it floated the currency.

The float has been seen as an indication that the government would address basic high-cost economic problems to improve Indonesia's competitiveness.

"The government has boasted the strength of our macroeconomic fundamentals. And it is undeniable that our fundamentals are strong," Rino said.

He said indicators of strengthening fundamentals include low inflation, improving trade balance, budget surplus, declining public offshore debts and increasing foreign exchange reserves.

"But we do have our weaknesses which investors like to pinpoint," Rino said, citing cumbersome bureaucracy, inefficient ports and warehousing, weak financial services and other below- par infrastructure.

"Does the government dare to scrap or streamline the bureaucracy, cut high costs at ports and address the problems inherent in our weak financial services such as costly warehousing, bottle necks in infrastructure and so on?" Rino asked.

Raden suggested the government pursue "down-to-earth" deregulations to address micro problems.

He said sensible deregulations, not the cosmetic ones so far pursued by the government, would help regain investors' confidence in Indonesia. (aly/rid)

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