Shares prices up but rupiah falls

Shares prices up but rupiah falls

JAKARTA (JP): The rupiah weakened further yesterday, dropping
100 points against the U.S. dollar amid eased liquidity, while
local share prices continued to gain ground, analysts and dealers
said.

Foreign exchange dealers said rupiah supply was adequate
following the maturing of central bank papers totaling Rp 976
billion (US$348.5 million) yesterday and Rp 800 billion Tuesday.

"This forced the rupiah to weaken as people started buying
dollars again. Confidence in the rupiah has not yet returned as
the strengthening of the rupiah so far seems to be artificial,
supported by high interest rates," one local foreign exchange
bank said.

Spot rupiah, which opened at 2,780/2,800 against the U.S.
greenback, fell in a thin market to close at 2,875/2,890 on the
back of eased liquidity, he said.

Meanwhile, share prices rose slightly with the Jakarta Stock
Exchange composite index up 0.2 percent, or 1.224 points, to
close at 555.462 yesterday, with a total turnover of 415.1
million shares changing hands at Rp 478.5 billion (US$170.7
million).

Morgan Greenfell Asia Indonesia's banking analyst Mirza
Adityaswara said the market was waiting for the central bank's
next move following the slight easing of liquidity since Tuesday.

"I suspect this is just temporary and the central bank is
testing the water," he said.

Head of research at ING Barings Securities, Tom Inglis, agreed
and said investors were still cautious about entering the
currency market due to continuing uncertainty.

Coordinating Minister for Economy and Finance Saleh Afiff
reiterated yesterday the government would maintain the current
tight monetary policy until the rupiah stabilized.

But foreign exchange dealers said the central bank was likely
to gradually ease rupiah liquidity to prevent small banks from
collapsing.

They said the central bank was helping small banks with short-
term liquidity assistance.

"This helps the market breathe. The money is already there
although it is still expensive," one foreign exchange dealer
said.

He said several money brokers had been offering some banks
huge sums of funds, ranging from Rp 250 billion to Rp 2 trillion.

"I don't know where they got such a huge fund. But the most
important thing is that they help ease liquidity," the dealer
said.

He said he fully supported the government's move to deal
firmly with foreign banks operating in Indonesia which offered
free-income-tax overseas deposits to local investors.

"This time, I support the government because it (free-income-
deposit offer) will destroy the market," he said.

The Ministry of Finance reaffirmed Tuesday that the interests
received or accrued from deposits and savings held overseas
through local banks or foreign banks operating here remain
subject to 15 percent income tax.

Minister of Finance Mar'ie Muhammad said yesterday he had
instructed the tax office to investigate banks suspected of not
collecting the 15 percent (final rate) income tax on the interest
on deposits or savings they placed overseas.

"We already know that several banks have offered such an
incentive (free-income-tax overseas deposit)," Mar'ie told
journalists after a meeting with the House of Representatives.

"Therefore, I have asked the directorate general of taxes to
audit banks strongly suspected of waiving the 15 percent income
tax they are legally bound to withhold on the interest on
deposits or savings," Mar'ie said.

Dealers said currency trading was quiet yesterday, with
overnight money stable at 20 percent.

They said some operators were taking profit in the swap market
after premiums fell sharply.

Overnight swap dropped 2/3 points from 5/6. One-month swap
edged slightly up at 75/95 from 70/80 in the morning, two to
110/125 from 90/110, three to 150/170 from 130/145 and six to
230/260 from 210/240 points. (aly/rid)

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