Rupiah plunges to almost Rp 12,000 in panic buying

Rupiah plunges to almost Rp 12,000 in panic buying

JAKARTA (JP): The embattled rupiah plunged to almost Rp 12,000
per U.S. dollar late on Friday in panic buying amid heightened
political uncertainty ahead of a plenary session of the House of
Representatives at the end of this month.

The rupiah ended at Rp 11,925 per dollar from Rp 11,095 per
dollar on Thursday as local companies rushed to buy dollars in
the afternoon when the local unit passed through the Rp 11,500
level, dealers said.

They said that the local currency could continue to fall next
week if the domestic political situation worsened.

Dealers said that Bank Indonesia was seen selling some of its
dollars to try and defend the local unit, but to no avail due to
the state of panic in the market.

The currency market has been jittery in the run-up to the
legislative session that will decide whether to pass a second
censure motion against President Abdurrahman Wahid. Not only
could this lead to his impeachment, but it could also cause
massive violence between the President's supporters and
opponents.

Earlier on Thursday Abdurrahman warned the House that some
400,000 of his supporters were ready to defend him. The comments
caused the rupiah to drop through the psychologically important
level of Rp 11,000 per dollar during the day.

The President's supporters are expected to flood Jakarta on
April 29, one day before the legislative session to join a mass
prayer organized by Nahdlatul Ulama (NU), a large Muslim
organization once headed by Abdurrahman.

Meanwhile, Bank Indonesia deputy governor Miranda Goeltom said
on Friday that the fall in the rupiah was due to a combination of
domestic and regional factors.

Miranda said that there was a lot of dollar demand both from
companies and individuals, but a lack of dollar supply in the
market.

But Bank Indonesia Governor Sjahril Sabirin blamed domestic
political instability as the main cause of the drop in the
rupiah.

"The most effective measure (to strengthen the rupiah) is to
resolve the main cause of the problem, namely the political and
security uncertainty," Sjahril told reporters at the central bank
headquarters.

He added that implementing the economic reform program agreed
with the International Monetary Fund would also help improve
sentiment about the rupiah.

Earlier on Thursday Abdurrahman said that the current
weakening of the rupiah "reflects the fact that the market does
not accept Sjahril."

Abdurrahman has been trying to unseat Sjahril from his post,
but faces difficulties because under the central bank law, the
Bank Indonesia governor cannot be dismissed during his term
unless proven to have committed a crime or is incapacitated.

The government has proposed to amend the central bank law.

Sjahril admitted that Bank Indonesia had intervened in the
market to defend the rupiah, but declined to disclose any figure.

"We have been all out in defending the rupiah," he added.

"There is a possibility that (the SBI interest rate) would
increase again (if the rupiah continued to be under pressure),"
he added.

But he was quick to say that Bank Indonesia would try to limit
the interest rate increase so not to cause a state budget crisis.

The interest rate of one month SBI notes increased to 15.93
percent in Wednesday's weekly auction.

The combination of the weakening rupiah and rising interest
rate is threatening the state budget. There was fear that the
budget deficit could exceed 5 percent of gross domestic
production (GDP) from an earlier projection of 3.7 percent of
GDP.

Elsewhere, following a meeting with Coordinating Minister for
the Economy Rizal Ramli and other government officials late on
Friday, Miranda stated that the government had agreed with Bank
Indonesia's current tight monetary policy to help defend the
rupiah and curb inflationary pressures.

"So for the time being, the interest rate cannot be lowered,"
she said.

But Sjahril said that Bank Indonesia would take into account
the condition of the state budget in implementing its tight
monetary policy.

A high interest rate policy would inflate the state budget
because it would increase the cost of servicing more than Rp 430
trillion in government bonds issued to help finance the country's
major bank recapitalization program. (rei)