Rupiah plunges to new low over unfounded rumors

JAKARTA (JP): The rupiah plunged into uncharted territory yesterday, touching a new historic low of 4,600 against the U.S. dollar, over unfounded rumors on President Soeharto's health, currency dealers said.

But the stock market shrugged off the rumors and continued a four-day consecutive gain, with the Jakarta Stock Exchange composite index rising a modest 0.4 percent, stockbrokers said.

"The market was swamped by rumors that President Soeharto was seriously ill. People were jittery, pulling down the rupiah to an unrealistic level. I just can't believe it," said a local private bank chief dealer.

"I think it is the work of those who are in a long dollar position. By making this fuss, they could make a lot of gains," added a state bank chief dealer.

Spot rupiah hit another historic low of 4,600 to the greenback, down 450 points from an opening of 4,150 to the dollar. The rupiah closed at 4,550/75.

Yesterday's drop was the rupiah's largest single-day drop -- outstripping the previous intraday fall record of 155 points in August when the central bank floated the currency.

Local currency dealers said rumors about Soeharto's health started in Singapore early in the morning and continued to Hong Kong, Japan and the local market, forcing local people to dump their rupiah holdings to buy dollars.

Minister/State Secretary Moerdiono and Soeharto's second son Bambang Trihatmodjo separately denied the market rumors and said the President was in good health and resting at home.

Currency dealers said the denials from Moerdiono and Bambang relieved the market a bit, but warned that sentiment remained bearish.

They also said the market still suffered a shortage of dollars as those holding dollars preferred swapping them to selling them on the spot market.

Consequently, short-end swap rates entered negative territory and overnight dollar interest rates skyrocketed to between 12 and 18 percent from normal rates of 6 percent.

The private bank chief dealer said foreign operators, especially those in Singapore, were continuously flooded with rupiah as more and more wealthy Indonesians transferred their savings.

"Today, my bank lost one customer with a deposit of US$1 million. He said he would place his money in a Singapore bank. I don't know how to prevent such a kind of capital outflow in a free foreign exchange regime," he said.

"In this situation, foreign players will continue to dictate local players. They are free to play with enough liquidity, while local players are being strangled with continuing tight liquidity," he added.

Dealers said Bank Indonesia, the central bank, was not seen intervening in the foreign exchange market. But some dealers said the central bank intervened directly by buying rupiah from banks, not through money brokers.

They said Bank Indonesia also intervened in the money market by borrowing rupiah through the interbank market, which sent short-term interbank rates going up to over 25 percent.

A major fire at one of the central bank's buildings Monday affected clearing activities -- canceling interbank transactions through the interbank money market -- and made the rupiah even more expensive as all big transactions had to be settled with bank drafts, the said.

But Bank Indonesia said in a statement yesterday that all clearing activities had returned to normal.

The bruised rupiah, however, did not affect the stock market, which had been guarded by state-owned securities houses, stockbrokers said.

The Jakarta Stock Exchange composite index closed up 1.883 points at 425.496, with a total turnover of 465.5 million shares worth Rp 541.944 billion ($118.5 million).

"I don't see any fundamental reason to support the market with a sagging rupiah and high interest rates. I think it was Danareksa and Bahana which drove up the index," a local securities analyst said.

He said state-owned Danareksa Sekuritas and Bahana Securities were equipped with combined fresh funds of some Rp 1 trillion from state-owned enterprises.

In an effort to drive the rupiah, he said, Danareksa was seen actively buying the largest-cap stock, state-owned domestic telecommunications firm Telkom, to drive up the index.

Telkom accounts for 17.85 percent of total market capitalization.

Telkom closed up Rp 150 at Rp 3,225, while international telecommunications operator Indosat slipped down Rp 75 to Rp 9,175.

Cigarette maker Sampoerna fell Rp 150 to Rp 4,925, while competitor Gudang Garam fell Rp 25 to Rp 8,650.

Bank International Indonesia fell Rp 50 to close at Rp 475, Bank Negara Indonesia dropped Rp 50 to Rp 550 and Bank Dagang Nasional Indonesia closed Rp 25 lower at Rp 400. (rid)