Rupiah recovers after all-time low of 8,450

Thu, 08 Jan 1998, 00:00 WIB | Source: JP

JAKARTA (JP): The rupiah plunged to a record low of 8,450 in
morning trade yesterday as financial markets gave a cool response
to the 1998/1999 state budget but recovered later to close at
7,900/8,100.

The weakened rupiah also dragged down share prices, pushing
down the Jakarta Stock Exchange's (JSX) composite index below 400
points.

The rupiah hit a low of 8,450 against the U.S. dollar in the
morning session before recovering to 8,200/8,300 during lunch
break.

The spot rupiah ended at 7,900/8,100 at the close compared to
an opening of 7,500/7,900.

The rupiah has persistently dropped since financial turmoil
hit the country early July last year. The greenback has
appreciated 235 percent against the rupiah since then.

Negative reaction toward the draft state budget unveiled by
President Soeharto Tuesday night fueled the rush for dollars,
currency dealers said.

The demand for dollars did not only come from corporate
borrowers to pay maturing debts but also from jittery individuals
and institutions, one dealer said.

"I think a negative response to the budget and a limited
supply of dollars were the main reasons behind the rupiah's free
fall," a chief dealer with a local private bank said.

Bank Indonesia, the central bank, was not seen in the market
to shore up the rupiah, another dealer said. He said during the
current situation, market intervention was no longer effective as
pressure from other falling regional currencies would remain
strong.

Dealers said currency trading was not very active in the thin
market.

Financial analysts said the draft state budget, which called
for a hefty 32 percent increase in both revenue and expenditures
to Rp 133.5 trillion, was too optimistic given the drop in the
country's economic performance.

"Most people in the financial market think that some figures
in the government's state budget are too optimistic and
unrealistic," an analyst said.

According to analysts, the government's goal to lower the
inflation rate to 9 percent from 11.05 percent in 1997 was
unrealistic, given strong inflationary pressure resulting from an
increase in prices.

The government's plan to maintain its economic growth of 4
percent in the next fiscal year was also unrealistic, they
said.

They said the government's failure to convince the public that
the proposed budget would be able to create a surplus of about 1
percent of the gross domestic product as expected by the
International Monetary Fund (IMF) was also the reason behind the
continued drop in the rupiah.

"Trade volume has declined from that recorded late last year,"
a dealer said.

The rupiah's free fall dragged down share prices on the JSX,
with the benchmark composite index losing 1.99 percent to close
at 394.23.

Stock brokers said the stock market, which had lost direction
due to the rupiah's sharp fall, also ignored the expansive state
budget.

"The state budget does not have any positive impact on the
market today (yesterday) and the fall of stock prices was largely
driven by the fall of the rupiah in the currency market," an
institutional broker with Trimegah Securities said.

Stock analysts said they found nothing in the proposed budget
that could restore confidence in the country's financial and
capital markets.

"A report that the IMF is very disappointed with Indonesia's
draft state budget will further damage investors' confidence," an
analyst said.

IMF officials called Indonesia's economic crisis worrisome
Tuesday and faulted the Jakarta government for failing to follow
through on pledges to restructure the nation's economy. (aly)

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