Rupiah staggers on market confusion over govt policies

JAKARTA (JP): The rupiah tumbled yesterday to break the psychologically sensitive 10,000 level on mounting confusion over the government's controversial currency board system plan and the fate of the International Monetary Fund's bailout package, currency dealers said.

They said the rupiah, which had been relatively stable over the past few weeks, dropped to close at 10,400/10,600 against the U.S. dollar yesterday from its opening of 9,500/9,800 in the morning session.

Yesterday's closing rate was 11 percent lower than the 9,450 closing rate the previous day.

Dealers said there had been significant market speculation that the next US$3 billion tranche of the IMF's aid package for Indonesia would be delayed by two or three weeks.

Currency dealers said the delay sparked wild talk in the market that the IMF might be considering suspending the second tranche disbursement.

"Though nothing is clear yet about the delay. But if this happens, Indonesia's paralyzed economy would further deteriorate in the coming months," a chief dealer with a local bank said.

"I think this is the main reason for the falling rupiah in the currency market today," he said.

He said financial market talks on the possibility of shelving the currency board proposal -- the factor which had caused the rupiah to stabilize over the past few weeks -- put stronger pressures on the currency yesterday.

Dealers said President Soeharto's currency board plan had prompted many foreign operators to unload their dollar holdings for rupiah over the past four weeks.

"But the latest talks on shelving the currency board plan in a three year time prompted foreign operators to attack the rupiah again," another chief dealer with a state-owned bank said.

He added that the central bank was not seen in the market yesterday.

Most currency dealers shared the view that the government should come up with something bold and decisive to heal the country's ailing economy, otherwise the rupiah might fall further to unchartered territory in the coming days.

"I'm afraid the rupiah could drop further if the government does not come up with something positive for the market," a dealer said.

The rupiah reached an all-time low of 17,000 in early January, losing more than 80 percent of its value against the American dollar since July.

As the rupiah weakened, stock prices on the Jakarta Stock Exchange (JSX) rose 2.7 percent on the back of speculative local buying for certain selected stocks like PT Telkom, Indosat and Tambang Timah, stockbrokers said.

Brokers said foreign investors bought the stocks on the back of the weakening rupiah to benefit from the differential in the domestic and foreign price.

"It is just arbitrage trading as usual," a broker with a local securities said.

The JSX Composite Index rose 13.57 points to 516.48 points yesterday from 502.91 the previous day on a total turnover of 516.48 million shares on the regular market valued at Rp 502.91 ($50.29 million).

But most brokers said trading activities were losing direction as they saw major sell-offs in the morning session by big foreign brokerage houses.

The head of equities at Bahana Securities, Bruce Rolph, said large foreign brokerage houses like ING Barings, Indosuez WICarr and Jardine Fleming Nusantara were net sellers in the morning which led the main index to decline.

However, speculative buying by other foreign and local brokerage houses on certain blue chip stocks helped the index rise in afternoon trading, he said. (aly)