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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Jyoti sharma who wrote (2029)	2/10/1998 8:51:00 AM
From: Mohan Marette	Read Replies (1) \| Respond to of 9980

Jyoti: I haven't found any reasons for the SEA currency move yet, perhaps someone has and hope they will post it here.

To: Jyoti sharma who wrote (2029)	2/10/1998 9:24:00 AM
From: Mohan Marette	Respond to of 9980

Jyoti & Others: SEA currency moves- This may be the reason 10-FEB-1998 Government hints at pegging the Rp at a certain exchange rate JAKARTA (Bisnis): The government has hinted at pegging a certain exchange rate of the rupiah to the US dollar, while Bank Indonesia is said to be ready to review its currently applied free floating exchange rate system. The government's plan was revealed when President Soeharto said that the government must determine a certain exchange rate of the rupiah against the US dollar in order to facilitate corporations in making their calculations, especially those pertaining to exports. "Hopefully, I will announce it in a short time," said President Soeharto in a meeting with members of the Council of Muslim Ulema (MUI) at Bina Graha here yesterday. Setting a fixed rate would help producers in importing raw materials and students who wish to study overseas as well as Muslims who wish to go on pilgrimage, he said. "By doing so, I'm convinced that I would be able to thwart actions by speculators." "Should we decide to use that fixed rate system, speculators and market players as well as ordinary people will surely buy dollars in large amounts," said the President, without mentioning the planned value of the rate. The rupiah has been left to the market using the free floating exchange rate since August last year, causing it to plummet to as low as 16,500 [Jan. 26, 1998] to the US dollar, but rebounded to 8,700 [Jan. 14]. Last week, the rupiah hovered around 8,000-10,000. The rupiah yesterday managed to strengthen to 8,000 after the President announced his plan to set a new policy but later went down to 9,725 when street demonstrators occurred in front of the BI Building here to protest rising prices of basic goods. The President told the Muslim scholars that the government would usually control the rate by doing interventions but that "speculators have continued to buy dollars." "Now, we shall take different measures which will kill them off," he asserted. He pointed out the new policy would obviously contain loopholes which others could take advantage of as the amount of forex reserve is relatively limited. BI said that as per January 15, 1998, Indonesia's forex reserve stood at US$ 20.3 billion or enough for five months of imports. Meanwhile, Bank Indonesia is said to plan a review on the free floating exchange rate system which now prevails. Governor of BI J. Soedradjad Djiwandono, on the sidelines of a meeting with the House yesterday, said that the central bank is still studying the currency board system (CBS). BI Director Miranda Gultom, who accompanied Soedradjad, said that discussions on the system are based on orthodox and non-orthodox ideas. "The two ideas differ in the amount of forex reserve required, with the orthodox advocating the support of a 100% forex reserve." "The non-orthodox approach seeks at least a 50% forex reserve as we see in a number of countries such as Argentina (65%), while Hong Kong insists on five times as much, which made her very strong," she said. Soedradjad said that many factors have to be taken into account before applying that system, such as "Is its application a move backward, and how would the market react to it, and what about exports?" CBS, he said, requires a huge amount of forex reserve and a strong banking system because after the rate has been set, the market will react quickly. Managing Director of IMF Michel Camdessus has said that CBS may help stabilize the rupiah but that it would not be the only option. He warned that CBS would not be able to work as it should if the reform program agreed upon by Indonesia and IMF is not fully implemented. "If the reforms fail to recover the rupiah because of a lack of government cooperation, then the CBS is not the solution," he said in New York, as quoted by AFP. He said uncertainty remains in place as far as Indonesia's political future is concerned. (m2/09/ens/lt)