Soeharto sees rupiah close to equilibrium

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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