Sliding rupiah further shakes Asian currencies

Sliding rupiah further shakes Asian currencies

SINGAPORE (Reuters): Asian currencies suffered from the Indonesian rupiah's whims yesterday in the face of growing international resistance to Jakarta's plans to adopt a currency board system.

The rupiah pulled off its early low of 10,800 to the dollar following persistent dollar sales by U.S. investment banks around the 10,500 level.

But dealers said its outlook remained bleak against a backdrop of growing social unrest, worries about the probable selection of minister B.J. Habibie as vice president and mounting international criticism of a proposal to peg the rupiah to the dollar.

The Washington Post newspaper said IMF managing director Michel Camdessus had written to President Soeharto expressing strong disapproval of the plan.

"In the present circumstances ... if a currency board proposal were adopted, we would not be able to recommend to the IMF Board the continuation of the current program because of the risks to the Indonesian economy," Camdessus said.

A European bank dealer in Singapore said offshore banks were increasingly unwilling to deal with Jakarta banks due to a growing credit squeeze, effectively leading to a two-tier market for the rupiah.

Other Southeast Asian currencies were hit by the rupiah's early drop but their falls were more muted and dealers said they were beginning to show resilience to the rupiah's fortunes.

The Thai baht recovered from a low of 48.00 to the dollar despite Finance Minister Tarrin Nimmanahaeminda saying Indonesia's adoption of a currency board could complicate Thailand's economic recovery efforts.

The baht was pulled down initially by dollar demand from importers and other companies, expecting further weakness in the Thai currency.

Central bank governor Chaiyawat Wibulswasdi urged investors to differentiate between the baht and rupiah and said the baht's rate at 45-48 per dollar showed an encouraging trend.

The Singapore dollar remained soft near the 1.68 level to the U.S. dollar as operators worried about the country's exposure to Indonesia.

"The funds are all taking a bearish forward view on the Sing dollar. There was a lot of outright buying of dollars against the Sing from U.S. investment houses this morning," the European bank dealer said.

The Malaysian ringgit was also weak, but dealers said its fall should be capped around 4.00 per dollar for the time being.

Prime Minister Mahathir Mohamad met his Singapore counterpart Goh Chok Tong for the third time in a month to discuss the regional financial crisis.

Malaysian Foreign Minister Abdullah Badawi said he knew of no specific proposals to address the issue emerging from the meeting, but added that "some general statements on how we will deal with the currency situation will be put in the communique". An official communique will be released on Tuesday.

The Philippine peso finished lower on the rupiah's slide, but its fall was cushioned by a lack of corporate dollar demand.

Manila traders said the peso might also have been supported indirectly by the central bank on Monday.

The Taiwan dollar was hurt by weakness in the yen, but pared its early losses on active foreign fund inflows to the stock market, dealers said.

The Hong Kong dollar was little changed and forwards shaved some of their gains as improved interbank liquidity offset the impact of Indonesian uncertainty on local interest rates.

The Seoul won ended down as foreign inflows to the stock market -- a major source of support for the won in recent sessions -- subsided.

Worries about the regional outlook and losses from Korean investments in global derivative products and resulting disputes with foreign banks also weighed on the won.

The Vietnam dong slid after the central bank lowered its pivotal interbank rate by 5.3 percent to 11,800 dong to the dollar, citing the impact of the currency crisis on trade competitiveness and tourism.

Vietnam last allowed its currency to slide in October when it used a widening of the permitted interbank trading band to engineer a de facto devaluation of nearly five percent.