Rupiah recovers after touching 12,000

JAKARTA (JP): The rupiah recovered slightly yesterday afternoon after touching a day low of 12,000 to the U.S. dollar on concerns over the future of Indonesia's reform program.

The currency closed at 10,400 against the greenback, gaining from Thursday's close of 10,500.

Dealers said rumors that Indonesia would abandon International Monetary Fund (IMF)-sponsored reforms and go ahead with its plan to peg the rupiah to a foreign currency at a fixed exchange rate caused jittery dollar buying.

The dealers said investors feared that the Indonesian economy would further sink if the government decided to abandon the reform program.

"Frankly, they're just groundless rumors as there is no positive sign to support such an idea," a chief treasurer of a joint-venture bank said, pointing to mounting opposition from international bodies for Indonesia to adopt the system.

"Market rumors like this have dictated the direction of the rupiah against the American dollar and this will prompt the rupiah to decline further below the 12,000 level next week," a chief dealer said.

Most international bodies and the Group of Seven (G-7) industrialized nations have opposed Indonesia's controversial plan to implement the currency board system saying Jakarta is not in a position to adopt the system and urging the country to stick to the IMF reform program.

The dealers also said overseas operators were making excuses for profit takings on early gains made in previous days.

They said news on massive foreign exchange losses suffered by state-owned Bank Ekspor Indonesia (Bank Exim) also played a role in the worsening market sentiment.

"People were surprised by the news of forex losses incurred by Bank Exim," another chief dealer with a joint-venture bank said.

Some currency dealers have long known that the bank was experiencing financial difficulties, but the amount of losses was much higher than expected, he said.

"But one thing's for sure, Bank Exim's forex losses will further deteriorate foreign investor confidence in the country's banking system," he said.

The dealer said Exim's foreign exchange loss was partially attributed to the central bank's intervention late last year to shore up the rupiah against the American dollar.

"I think Bank Exim has become a scapegoat for the central banks' repeated intervention in the currency market to prop up the rupiah," he said.

Most dealers also attributed the weakening of the rupiah during the morning session to persistent dollar demand by local banks and corporations to pay their dollar-denominated obligations.

"Pairing Bank Exim's forex loss, demand by local banks to cover their dollar obligations remained high in the morning session," he said.

As the rupiah recovered slightly, stock prices on the Jakarta Stock Exchange (JSX) slipped 0.8 percent yesterday as the rupiah's recovery pushed down selective dollar-sensitive stocks off their highs, stockbrokers said.

They said foreign investors were in a profit-taking mood throughout the day, particularly on certain stocks that made a good run earlier this week.

"I think it's understandable for foreign investors to sell their stocks for profit taking as the market continues to be uncertain," a broker with Trimegah Securities said.

The JSX Composite Index closed 4.25 points lower to 512. 23 from 516.48 the previous day.

About 421.82 million shares changed hands on the regular market valued at Rp 676.95 billion (US$65.09 million) yesterday.

Chandra Nasution, an analyst from Pentasena Securities, said trading activities in the local exchange had lost direction over the past few weeks as the government had yet to announce any clear-cut measures to restore market confidence. (aly)