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Technology Stocks : INDONESIA'S PT TELECOM(TLK) -- Ignore unavailable to you. Want to Upgrade?

To: tom who wrote (298)	2/10/1998 8:48:00 AM
From: Duke	Respond to of 947

Fixed rupiah? Cut dollar longs in case say traders By Phil Smith SINGAPORE, Feb 10 (Reuters) - The rupiah jumped more than 30 percent at one stage on Tuesday as traders got more excited about the prospect of Indonesia adopting a currency board, or some other system of fixing the exchange rate. But despite the move, few in the market seriously believed it was a possibility or, even if it happened, that it would work or last. Those with short rupiah positions were simply not willing to take a chance, however, and while volume was fairly thin there was a scramble to cover exposed positions, analysts said. ''The best guess is that if it is fixed it will be at 5,000 or 5,500,'' said Chiang Yao Chye, Head of Asia Pacific Research at CIBC in Singapore. ''People are sceptical that a currency board would work but the fear is they will try something. The prospect of something, even if it doesn't last more than a couple of months, means that if you're long dollars you want to get out.'' The rupiah rallied to 7,000 per dollar from an opening 9,400 and previous close of around 9,700. A currency board system allowed Hong Kong to see off a speculative attack on its currency last year. The system creates a stable exchange rate because it ensures that every unit of local currency on issue is backed by the equivalent in, say, U.S. dollars -- reserves which Indonesia certainly does not have at the moment, analysts said. Indonesia's central bank governor Sudradjad Djiwandono said after a meeting of top economic policy makers on Tuesday that a proposal to adopt a currency board system was being studied but no decision had been taken yet. The general view among analysts was that with Indonesia's massive economic and debt problems this is no time to try and fix the currency using any sort of system. ''They (the market) may not believe it wholeheartedly but they can't risk getting caught long dollars as the view gains strength,'' said Andrew Fung, Regional Treasury Economist at Standard Chartered in Singapore. There were strong rumours in the market that a decision on some kind of fixed system for the rupiah would be announced as soon as next Monday, traders said. The other factor supporting the rupiah was the fact that interest rates might have to rise drastically to support the currency once it was fixed. ''As with all currency boards, they lose control of their interest rates. We're seeing very high interest rates in Indonesia right now. One-year swap points are at 4,000/4,600, which is like 61 percent,'' said a U.S. bank trader in Singapore. Running a short-rupiah, long-dollar position while interest rates went sky-high would certainly be extremely expensive. ''What do you do?'' asked one trader. ''You get out. None of these positions are particularly big and they'll become very pricey if rates go up even more.'' So the market action on Tuesday was very much a safety play and could quickly unwind if the rhetoric was not backed up with solid action. Crying wolf is not something that impresses financial markets. ''Now the market's expecting them to announce a currency board. If they don't it's (the dollar) going to go all the way back up again,'' the U.S. bank dealer said. But underlying all of Tuesday's action was that adopting a currency board system made little sense. ''To introduce a currency board at this juncture ahead of the Indonesian People's Consultative Congress meeting where the election of the vice-presidential candidate is key to the future rupiah direction, and ahead of potential military reshuffle and more riots would be foolhardy,'' said Thio Chin Loo, strategist at Banque Paribas in Singapore. ''It is almost impossible to determine a fair rate under current market conditions to fix a dollar/rupiah exchange rate which would not be a target of speculation.''