Rupiah not affected by dollar plunge: Analysts

Rupiah not affected by dollar plunge: Analysts

JAKARTA (JP): Although the U.S. dollar fell against the
Japanese yen to reach another post-war record low yesterday,
analysts said the rupiah was holding firm and that monetary
instability was unlikely in the near future.

"There should not be any reason for panic in the immediate
future about the rupiah and other regional currencies," James
Castle, president of investment consulting firm Business Advisory
Indonesia, told The Jakarta Post yesterday.

"This is because the fall of the dollar against the yen was
perceived as something that came out of developed economies
rather than the emerging markets," he said.

The dollar reached a new global low yesterday, hitting 80.15
yen on the Tokyo foreign exchange market, despite greenback-
supporting market intervention by the Bank of Japan.

It was quoted at 82.92-82.97 yen in afternoon trading, against
83.89-83.92 yen on the previous trading day in Japan and 83.68
yen quoted in New York late Friday.

Market developments here and in Singapore proved Castle right
as the rupiah held steady at closing despite some selling during
the day.

The U.S. greenback was quoted at Rp 2,231 at closing
yesterday, unchanged from Friday, although it started the day at
around Rp 2,233.

After a brief episode of dollar rush in the rupiah market in
January following the Mexican financial crisis, Minister of
Finance Mar'ie Muhammad said that the depreciation of the rupiah
against the greenback would be limited to between three percent
and four percent.

According to Bank Indonesia, the dollar appreciated to Rp
2,221 yesterday from Rp 2,191 on Jan. 2, while the yen rose to Rp
26.80 from Rp 22.10.

Tolerable

A foreign investment banker told the Post yesterday that all
the sales of rupiah yesterday were still within the tolerable
limit set by Bank Indonesia, which usually intervenes when the
spot market of the local currency nears the official exchange
rate.

"Nothing to worry in the immediate future. The concern should
be a little further in the future, regarding Indonesia's debt
payments," he said.

Although Indonesia has never once rescheduled its debts since
1967, some analysts have expressed concern about the rising yen
because, they say, every time the yen goes up by one percent
against the dollar, it adds $300 million or more to Indonesia's
debts outstanding.

According to official figures, Indonesia's foreign debts, a
majority of which are long-term government loans, totaled around
$88 billion. About 40 percent of those loans are denominated in
yen, with annual interest rates of between two-and-a-half and
three percent.

About 15 percent of the country's 1995/1996 budget, effective
as of April 1, is financed by foreign development loans.

Analysts estimate that Indonesia's current account deficit may
reach $3.6 billion during this financial year and that its debt-
service ratio may reach 31 percent.

Doubt

According to a report last week by U.S.-based merchant bank
J.P. Morgan, foreign managers' doubt about Indonesia's ability to
honor its debts was the cause of the rupiah's depreciation on the
spot market last month.

"Last Friday (Friday March 31 and the end of the 1994/1995
fiscal year), the rupiah dropped to 2,238/US$, returning the
depreciation rate back to 3.8 percent -- exactly the rate seen
during the height of January's 'tequila fever'," the report said.

It also said: "This year, seemingly, investors have come to
worry about a perceived increase in Indonesia's external debt
burden brought about by the rising yen."

Castle, however, played down the likelihood of another
misperception of Indonesia's fiscal strength on the part of
foreign fund managers.

"Look, Indonesia has a good credit history and the government
has repeatedly stressed that it will maintain its prudent fiscal
policy," he said.

He also pointed out that, besides rosy projections of overall
economic growth and an increasing influx of foreign capital, the
country's foreign exchange reserves had increased last month.

Figures from Bank Indonesia show that, as of last month,
foreign exchange reserves had risen to $13.23 billion from
February's level of $12.70 billion. (hdj)