Jakarta – The Indonesian rupiah plunged to its lowest level of the year Tuesday, prompting the government to promise further central bank intervention this week to prop up the ailing currency.
The rupiah touched a 10-month intra-day low of 9,500 to the dollar before staging a slight technical rebound to 9,350-9,380 by late afternoon. It closed Monday at 9,385-9,425.
The exchange rate reflects a 35 percent drop in value since President Abdurrahman Wahid took office just more than a year ago. Sentiment in the share market has also plummeted: stocks have lost more than 40 percent of their value since the beginning of the year.
On Monday Wahid admitted to the International Monetary Fund (IMF) the rupiah's plunge was caused by a perception of political instability and demands for him to quit. Several economists and politicians have in the past week said Wahid should resign after he and his government failed to improve the country's economy after one year in office.
But on Tuesday coordinating economic minister Rizal Ramly blamed the fall on "irresponsible calls by certain politicians to replace the current government without substantial reason," insisting underlying economic conditions were "relatively stable at the moment."
He said the central bank was expected to inject more than 10 million dollars into the foreign exchange market this week. "Last week the cost of stabilising the rupiah was approximately 10 million dollars. This week, [it should cost] above 10 million dollars."
On Monday, visiting IMF Asia Pacific director Yusuke Horiguchi spelled out the danger faced by Wahid's government if it failed to lift the market. "If market sentiment does not strengthen, your investment will be weakening, the growth will be weakening and the people of your country will be suffering," he said.
Horiguchi also relayed concerns on debt restructuring and greater corporate transparency. The IMF is the coordinator of a 46- billion-dollar 1997 bailout package to pull Indonesia out of the Asian financial crisis.
The wave of popular and market optimism that greeted Wahid's election last year, ending more than 30 years of rule by the military-backed autocratic regime of Suharto and his brief successor BJ Habibie, has evaporated.
Ethnic, separatist and religious conflicts and violence raging across the Indonesian archipelago – in the Maluku Islands, Irian Jaya, Sulawesi, Aceh, and West Timor – have continued unabated amid government inaction.
Members of Wahid's administration have also been hit by allegations of corruption, and concerns have been rising over the government's commitment to economic reform and the resolution of various financial scandals.
In addition, despite efforts to the contrary, Wahid has been unable to present a united front with his deputy Megawati, while his poor health has undermined his credibility and authority.
On Tuesday, BNP Prime Peregrine head of research Harry Su said another reason for the rupiah's sharp fall was strong corporate demand for the dollar, making it pointless for the central bank to support the local currency.
"We've got around 9.2 billion dollars in corporate debt due this quarter. This massive demand coupled with political uncertainty created a combination of pressures on the rupiah. After corporate demands are met, I would say the direction of the rupiah will then depend on whether the government can come up with concrete and credible policies."
He also cited the need to replace the chairman of the Indonesian Bank Restructuring Agency (IBRA) and tension with the United States as providing further downward pressure. In addition, traders said the rupiah's level fairly reflected its movement in line with the Philippine peso and the Thai baht, both of which have also fallen. A regional bank dealer added: "The outlook is hard to say. [But] regionally, we don't expect any surprises on the positive side."