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)

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