Soeharto sees rupiah close to equilibrium

Fri, 12 Sep 1997, 00:00 WIB | Source: JP

JAKARTA (JP): President Soeharto predicted the rupiah would
stabilize this month at a new market equilibrium, State Minister
of National Development Planning Ginandjar Kartasasmita said
yesterday.

Following speculative attacks on the currency since it was
floated on Aug. 14, the rupiah was now on the way toward a new
equilibrium, Ginandjar said.

"Mr Soeharto predicted sometime ago that the situation would
be stable again in September... And in fact, his prediction is
most likely to materialize as the rupiah is now close to
its new market equilibrium," Ginandjar said after a meeting with
Soeharto.

Ginandjar said Soeharto made the prediction in his capacity as
a leader with the ability to analyze the overall, not just the
macro-economic, situation.

When asked if the expected new level would be below 2,900, he
said: "We will see. It's difficult for us to set a certain level
because it may send the wrong signal at this moment."

But he reaffirmed that the government would not let the rupiah
depreciate further and, if necessary, it would intervene in the
market using "sophisticated" instruments.

The rupiah has plunged some 20 percent against the U.S. dollar
during the last two months and has depreciated more than 25
percent since January.

Yesterday, foreign exchange dealers said the rupiah weakened a
bit against the dollar in a very thin market.

Spot rupiah closed at 2,935/2,937 from an opening of
2,915/2,925, off the day's low of 2,950. Tomorrow and today
rupiah closed at 2,930/2,932 and 2,930/2,935 respectively.

One local bank dealer said offshore players were still
unloading their dollar holdings in the spot market and buying
them back in the forward market to arbitrage from the high
interest rates.

"Bank Indonesia should continue cutting rates for its short-
term SBI papers to prevent further arbitraging by foreign
players," he said.

He said that many foreign banks were taking an arbitrage
position, selling dollars in the spot, buying them back in the
forward market and at the same time placing the rupiah in SBI to
gain from the high rates.

"Just by selling, buying, selling, buying, they could gain up
to 3 percent net a month. So, I think Bank Indonesia should stop
that by cutting SBI rates to reduce large differentials between
SBI and forward rates," he said.

Dealers said swap premiums increased again yesterday as many
players took an arbitrage position.

One-month swap was at 47/52 points, two at 95/100 points,
three at 115/130 points, six at 200/225 points and one year at
375/425 points.

Dealers said the weakening stock market was continuing to
affect the currency although the regional factor also played a
role.

Stock prices on the Jakarta Stock Exchange dropped again by
3.28 percent, with the composite index easing 18.88 points to
close at 556.14.

An executive at Lippo securities, David P O'Neil, said most
investors were still out of the market, waiting for the right
moment to reenter.

"While there is no positive news to stimulate the market amid
this tight monetary condition, there is no reason for people to
invest in the stock market now ," he said.

Another analyst from a joint venture securities firm shared
David's view saying that the government should quickly implement
its new reform package to boost investor confidence.
(prb/aly/rid)

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