Spate of bad news sends rupiah tumbling again

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.