Spate of bad news sends rupiah tumbling again
Tantri Yuliandini, The Jakarta Post, Jakarta
The rupiah dropped below the 10,000 level against the U.S. dollar on Tuesday for the first time since late July due to negative sentiment created by anti-U.S. protests at home.
At one point in the day, the rupiah touched 10,135 per dollar before closing at a three-month low of 10,025.
Dealers said that Bank Indonesia intervened in the market.
Bank Indonesia deputy governor Achjar Iljas said the anti- American sentiment here had created negative sentiment in the market, causing the local unit to weaken.
Several Muslim fundamentalist groups have threatened to expel U.S. citizens and attack U.S. interests in Indonesia if the country proceeds with plans to attack Afghanistan, the hiding place of Osama bin Laden, prime suspect in the Sept. 11 terrorist attacks on New York and Washington.
Dealers, however, said that the Supreme Court decision on Monday to overturn a corruption conviction against Hutomo "Tommy" Mandala Putra, the youngest son of former president Soeharto, had raised fears within the market that it might trigger a new round of demonstrations by militant student groups.
Achjar, however, hoped that the rupiah's weakness would only be temporary so that the central bank did not have to further raise its benchmark interest rate.
He also said that Bank Indonesia would intervene in the forex market if necessary.
The stability of the rupiah is seen as pivotal in the country's economic recovery.
The government has assumed an exchange rate of Rp 9,600 per dollar in the current 2001 state budget. Since the rupiah mostly hovered between 10,000 and 11,000 in the first half of the year, the average exchange rate from August to the end of this year must be around Rp 8,500 to meet the target, experts said.
Failing to meet the exchange rate assumption would have serious consequences for the overall economy, including a larger budget deficit, economists have said.
The lower rupiah would also trigger inflation, which rose 0.64 percent month-on-month in September because of the currency's downturn.
Separately, Minister of Finance Boediono said that he was certain the decline was only temporary.
He said that the recent decline was sparked by an outflow of foreigners from the country, who fear the sweeps threatened by Islamic groups.
"The market records everything according to its own perception. The problem is that many problems are non-economic (in nature)," Boediono said, adding that he hoped the market would soon calm down.
"Everything will be all right once this reactionary psychological effect has worn off," he added.
In response to views that it would be better to control fluctuation of the rupiah by setting a fixed rate, Boediono said that he was sticking to his original stance.
"Like I've said before, if a man is in fever, the cure is not in fixing the thermometer, but to find the cause of the fever," he said, explaining that the rupiah would only strengthen when social and security conditions became stable and peaceful.
The rupiah enjoyed a brief stint around the 8,500 level immediately after Megawati Soekarnoputri was appointed president in late July, after hovering around the 11,000 mark during the final days of former president Abdurrahman Wahid's term in office.
The local unit retuned into 9,000 territory in September and has been steadily weakening since the incident in the U.S. on Sept. 11.