Rupiah won't drop during MPR session: Economist

Rupiah won't drop during MPR session: Economist

JAKARTA (JP): The rupiah is not likely to weaken much in the
run up to the Aug. 7 through Aug. 18 People's Consultative
Assembly (MPR) General Session as some have feared, according to
an economist at a state bank.

Bank Mandiri chief economist Martin Panggabean said on Friday
that the current weakening of the rupiah was only temporary as
the country's economic fundamentals had improved.

He also said that the move by Bank Indonesia to curb
speculation on the rupiah would also help limit the impact of
political instability on the local currency.

"The pressure on the rupiah is only temporary ... and
especially if Bank Indonesia succeeds in curbing speculation in
the rupiah by foreign banks," he said at a seminar on the
economy.

The rupiah ended higher in late trading on Friday at 8,945 per
U.S. dollar, compared to 8,970 on Thursday.

The rupiah has been under strong pressure this month due to
continuing political uncertainty ahead of the MPR session.

The local unit dropped to a 21-month low of Rp 9,570 per
dollar earlier this month.

But sudden inspections by Bank Indonesia officials into bank
dealing rooms to curb speculation has helped to prevent the
rupiah from breaking through the Rp 10,000 level.

Bank Indonesia officials said that it made the inspections to
ensure that the banks abided by the existing prudential rulings,
including a prohibition for banks from surpassing the 20 percent
daily net open position limit, and from opening forward contracts
worth more than US$5 million with nonresidents.

Bank Indonesia acting governor Anwar Nasution also called on
Singapore and other neighboring authorities on Thursday to help
curb speculation on the rupiah.

Many have feared that the rupiah could drop even lower than
the Rp 10,000 level due to the political uncertainty ahead and
during the MPR session.

President Abdurrahman Wahid will give an account of his first
10 months in power at the session, which is expected to be tense
as many fear that the lawmakers will use the meeting to impeach
the President.

The MPR is the country's highest legislative body and has the
right to unseat the President. But several senior politicians
have said that there would be no impeachment against the
President in the August session.

Approximately 68,000 police and military troops will be on
full alert during the 12-day session to maintain security,
particularly in Jakarta and the surrounding areas.

He said that based on the country's economic fundamentals, the
rupiah should be stronger.

Martin forecast that the rupiah would strengthen to about
8,500 per dollar this year, and to beyond 8,000 next year, driven
particularly by the country's stronger export revenue.

He said that world trading volume would continue to increase
over the next couple of years, and commodity prices would also
rise.

Martin dismissed suggestions that the current weakening of the
rupiah was similar to what happened in 1997 and 1998 when the
rupiah dropped to as low as 17,000 per dollar.

He said that although the country's foreign debt level
remained a problem now, as it was in 1997, the economic
fundamentals had now improved, including in terms of the current
account surplus and the relatively low inflation.

He also said that in 1997, the rupiah was overvalued, while
now people believed that the rupiah was undervalued.

"The rupiah is now undervalued, there's no way to rise further
from the current level," he said.

Martin, however, admitted that the rupiah would remain
volatile over the near term due to the remaining political
instability.

He also said that the country's current foreign exchange
system was the most liberal in the world, even so than the system
in Singapore.

He said that this was one factor causing the rupiah to be
easily speculated upon by overseas players.

He said that introducing a limited form of curbing overseas
trading of the rupiah would also help in curbing speculation on
the local unit. (rei)