Rupiah hits new low against dollar as share prices fall

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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