Rupiah's tragedy makes other Asian currencies shudder
Sonali Desai
SINGAPORE, January 22: The Indonesian rupiah broke down on Thursday amid mounting jitters about the country's debt crisis, a mere week after a package of stiff new IMF-led reforms sparked hopes of real change.It dived 20 per cent to 15,000 per dollar within the first hour of Asian trade, casting a shadow over other Asian currency and stock markets.Dealers said trading was extremely erratic, with bids from brokers at levels of 16,500 and 17,000.In Jakarta, there were reports banks had cut their interbank lines because they did not want to trade in current market conditions, while Singapore dealers also complained of a dwindling interbank market. "People just don't want to quote this currency any more. There's still a lot of (dollar) buying interest from US funds, Jakarta centres, everywhere. And nobody has any dollars to offer," a US bank dealer in Singapore said. The rupiah stood at 11,600/12,000 to the dollar at 0920 GMT after Bank Indonesia intervened repeatedly, selling dollars for rupiah at the
14,000 and 13,500 levels early and then at 12,500 in late trade.A senior government official said Indonesia would step up intervention in the foreign exchange market and soon draw on an existing $2.0-billion stand-by loan to defend the rupiah. But dealers said the market was still overwhelmingly in favour of the dollar following the government's failure to convincingly address the country's corporate debt, estimated at $65 billion, and growing bank liquidity problems. Central bank governor Sudradjad Djiwandono said on Wednesday the government would soon announce guidelines to resolve liquidity and solvency problems in the private banking sector. The rupiah was also hit by political worries after hints that research and technology minister Jusuf Habibie, viewed negatively by the markets, may be president Suharto's preferred vice-presidential candidate in March polls. Analysts said Indonesia urgently needed to find ways to reschedule or repackage its mountain of corporate debt."Everyone knows now that
they're not paying up... Although they've said that they won't bail out the private sector debts, I think they'll have to do something," said Chia Woon Khien, head of Asian research at Skandinaviska Enskilda Banken. The rupiah's dizzying drop did not wreak the usual havoc in Asian currency markets as Indonesia's problems were increasingly being perceived as a domestic crisis, dealers and analysts said.The Malaysian ringgit hit a morning low of 4.58 to the dollar, but then recovered to 4.4900/00 at 0920 GMT, still down from its late Wednesday levels of 4.4350/650. The Singapore dollar recovered some of its early losses, to stand at 1.7585/1.7625 against the US dollar from 1.7580/30 late on Wednesday.The Thai baht fell to 54.20/40 to the dollar onshore against 53.70/53.75 late on Wednesday. Dealers said offshore baht hit an early low of 55.30 in a knee-jerk reaction to the rupiah's drop. It was at 53.20/70 at 0920 GMT."The baht would likely follow the rupiah's footsteps offshore. A limited local
corporate demand for dollars to pay off foreign debt was offset by new inflow of foreign funds into the Thai stock market," a foreign bank dealer in Bangkok said. The Philippine peso stumbled to 42.72/82 per dollar against its previous 41.90 close as the central bank kept out of the market after days of indirect intervention. Central bank deputy governor Alberto Reyes said the bank would open its one-month lending facility to banks which cut their dollar overbought positions and would buy bank treasury bill holdings at market rates to add liquidity to the system. The South Korean won fell to 1,754/60 per dollar from Wednesday's 1,723 close as the rupiah's drop fanned speculative dollar purchases.But traders said dollar sales by exporters and demand for the won before the Lunar New Year break would cushion its fall. The Taiwan dollar surrendered its early gains drawn from the yen's rise and strong local cash demand ahead of the holidays, as players fretted about the rupiah. The Australian dollar
lost half a cent to $0.6578/85 on worries the rupiah's plunge would trigger another cycle of competitive devaluations. The Indian rupee was at 38.725/755 to the dollar from a previous 38.75/80 close and dealers said it was likely to be rangebound as the market absorbed the central bank's measures to tighten liquidity.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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