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)