Rupiah rebounds, but shares nosedive

Rupiah rebounds, but shares nosedive

JAKARTA (JP): The Jakarta Stock Exchange suffered another
large intraday loss yesterday, while the rupiah recovered to
2,890 in late trading after touching a new record low of 3,070
against the U.S. dollar, dealers and brokers said.

Stockbrokers said share prices fell 6.9 percent, pushing the
composite index down to a 21-month low, amid uncertainty over the
rupiah's direction and regional market slump.

The composite index lost 36.404 points to close at 493.962,
with turnover totaling 425.85 million shares worth Rp 764.412
billion (US$260.9 million).

Foreign exchange dealers said the rupiah was lifted by
increasing tight rupiah liquidity and a strong recovery in
regional currencies, especially the Malaysian ringgit.

Spot rupiah, which opened at 3,020/3,040, touched an historic
low of 3,070 in early trading but bounced back in the afternoon
to close at 2,890/2,910.

Securities analysts and brokers said yesterday's steep fall in
the stock market was not expected by most investors.

"The market is already collapsed, no one can save it now but
the government," said an analyst who declined to be named.

Another analyst from a joint venture securities house said the
main concern was still the rupiah.

"I think the tight monetary policy is behind all these stock
market disasters," he said.

A senior stockbroker with a joint venture securities firm said
yesterday's breaking of 500-point psychological index level would
further dampen the market.

"When the level is broken, I really do not see a clear
direction on share prices again," the broker said.

He said most foreign institutional fund managers had quit the
stock market and would not reenter until shares rebounded.

He said people had expected the tight monetary policy to ease
off and the rupiah to strengthen.

"But the gap between expectations and reality continues to
widen... and consequently, the market tumbled," he said.

"Since we do not know when the rupiah will stabilize... we do
not expect the share prices to gain ground," he added.

Bankers, businesspeople and analysts have called on the
government to gradually pour liquidity into the market to inject
the banking system and businesses.

They warned that a prolonged tight monetary policy could lead
to bank defaults and corporate bankruptcy.

State Minister of Investment Sanyoto Sastrowardoyo also
expressed similar concerns yesterday, saying that a tight
monetary policy was dampening the investment climate in the
country.

"The problem now is rupiah scarcity and increasing cost of
funds -- 35 percent, 40 percent, 45 percent. Businesspeople are
not able to work with such highly punitive interest rates,"
Sanyoto told journalists after meeting with President Soeharto.

"The government must try harder to end this situation... Now
it depends on the Monetary Council as to when and how we can get
out of this situation."

He said most investors had expected the central bank would
soon lower interest rates and end its tight monetary policy to
restore conducive investment climate.

"In this situation, people will simply put their money in bank
deposits and get 30 percent to 35 percent interest rates, rather
than invest it, which risks losses," he argued.

He said the President and other ministers were already aware
of the situation and they agreed such a situation could not be
let to last too long.

Coordinating Minister for Political Affairs and Security
Soesilo Soedarman said Thursday monetary authorities should not
maintain its tight monetary policy too long as it would kill
small and medium businesses.

"I beg that the tight monetary policy not last too long," he
said.

Despite pleas from many sides, rupiah liquidity remained tight
yesterday, which drove up interbank rates, foreign exchange
dealers said.

Jakarta call money was traded at between 80 percent and 90
percent yesterday, from 50 percent Thursday and 20 percent
Wednesday, on the back of relatively tight liquidity.

Dealers said the market opened with already high overnight
rates, with further upward pressure coming from high demand from
state banks for rupiah.

High overnight rates drove up one-week and one-month rates to
a level of 65 percent and more.

Bank Indonesia, the central bank, continued to deny the short-
term securities (SBPUs) facility and repo (repurchase) of central
bank certificates (SBIs). It also kept high bilateral SBI rates
unchanged yesterday.

"Relatively tight liquidity has helped the rupiah to
strengthen in the afternoon after reaching its lowest level in
the morning," one local bank dealer said.

Dealers said the improving regional sentiment, especially on
ringgit, had also helped the rupiah recover.

They said market talk of ringgit and Singapore dollar
purchases by a Brunei investment agency boosted the two
currencies and improved sentiment. (aly/rid)

Policy -- Page 4

Currency -- Page 11