Rupiah rebounds after plunging to 12,500 to the dollar

JAKARTA (JP): The battered rupiah fell further in early trading yesterday touching 12,500 against the U.S. dollar on growing concern over a standoff between the government and the International Monetary Fund (IMF).

The currency opened at 11,000/11,300 and, after volatile trading, managed to recover in the afternoon to close at 10,800/11,000 against the greenback.

Dealers attributed the rupiah's recovery on news that the government would go ahead with the controversial plan to peg the rupiah with a foreign currency at a fixed exchange rate under a currency board.

Yesterday's close was 3.8 percent lower than Friday's close at 10,400 against the American dollar.

The dealers said currency traders dumped their rupiah for dollars in early trading on fears that the government might pull out from the IMF reform package.

"If it happens, it would certainly cause a collapse in the economy," a chief dealer said. "Some overseas operators in Singapore attacked the rupiah for that reason," he added.

President Soeharto said Sunday the government had to tread cautiously in implementing the IMF economic reforms because they were not in line with the country's 1945 Constitution.

The President said the IMF reform program was based on liberal economic principles not consistent with the constitution, which calls for an economy based on "family principles".

Soeharto's comment was made in the wake of an IMF decision to delay its second US$3 billion payment to Indonesia, which is part of a $43 billion rescue package, until April because of Jakarta's preoccupation with forming a new government.

Many currency traders interpreted Soeharto's statement as an indication of worsening Indonesian-IMF ties, which could lead to a cancellation of the bailout package, either by the government or by the IMF.

The dealers said many traders took profits after the lunch break yesterday on fears that the government might introduce a currency board.

"The change in the trading mood helped strengthen the Indonesian currency," the dealer said.

Bambang Trihatmodjo, treasurer of the ruling Golkar party and a prominent business figure, said the government could announce a currency board soon after the president and vice president were installed.

The 1,000-member People's Consultative Assembly is set to elect Soeharto to a seventh consecutive presidential term today.

The dealers said the trading volume remained thin in the absence of central bank intervention in the currency market.

As the rupiah recovered, stock prices on the Jakarta Stock Exchange (JSX) ended 3.2 percent lower yesterday with the main price index falling 16.41 points to close at 495.08 in thin trading.

Stockbrokers said concerns over the tense Indonesian-IMF standoff prompted massive selling by foreign investors.

"Foreign investors were selling," a broker with a joint- venture securities firm said yesterday pointing out to market confusion over the direction of the country's stance with the IMF bailout package.

Brokers said 342.67 million shares changed hands on the regular market valued at Rp 650.83 billion ($62.01 million). (aly)