SINGAPORE, February 12: Doubts about Indonesia's plans to adopt a currency board system weighed upon Asian currency markets on Thursday, putting an abrupt end to recent gains.Dealers said scepticism about the proposal was heightened by US treasury secretary Robert Rubin's comment that Jakarta needed to strengthen its banks and reaffirm its commitment to reforms before introducing a currency board.
"They can't resolve the whole crisis with just that. The market needs to see what solid measures they are going to come up with," a European bank dealer in Singapore said.
"It was probably just a temporary thing, all the regional currencies going up. The question is how are they going to do this (implement a currency board)," she added.
In Indonesia, the rupiah was unsettled by mounting concerns over social unrest and the country's political succession, but dealers said expectations its value would soon be pegged limited the damage.
It remained near the 7,000 per dollar level for most of the day, up froma low of 7,800 after the ruling Golkar party named parliamentary speaker Harmoko and controversial research and technology minister Jusuf Habibie as vice-presidential candidates ahead of the March election.
"We see a balance of political concern and the fixed-rate regime which would keep the rupiah traded between 7,000 and 8,000," a dealer said.
The proposed system would glue Indonesia's rupiah to a convertible currency, expected to be the US dollar, and tie cash in circulation to central bank reserves. It effectively eliminates the need for a central bank or an independent monetary policy because any increase in money supply must be matched by an increase in reserves. If reserves fall, interest rates must rise to protect the currency.
The IMF said it had started talks with the Indonesians about what was needed to bring in a currency board. But a spokesman gave no details.
Finance minister Mar'IE Muhammad said on Wednesday the government was putting together a framework to set up a currency boardsystem which it would submit to parliament for approval "in the near future".
Elsewhere, the Malaysian ringgit slid back through the 3.70 per dollar level and dealers said it was likely to head for 3.80/83 in the face of renewed dollar demand from US funds and Kuala Lumpur companies.
"US funds seem to have reversed their decision earlier in the week which had taken dollar/ringgit from 3.85 to below 3.50," another European bank dealer in Singapore said. Bank Negara Malaysia said it had no plans to set up a currency board to control fluctuations in the ringgit. The Singapore dollar slithered lower in synch with its neighbour. Dealers said dollar/sing appeared to have found a base below 1.62 and should soon revisit 1.65/66.
The Thai baht also weakened on dollar demand from Thai companies seeking to make loan payments, but dealers said its fall was being cushioned by offshore dollar sales. "We are waiting for Indonesia to see what will happen about a currency board. Nobody wants to long it (the dollar)anymore," said a foreign bank dealer in Bangkok. The Bank of Thailand (BOT) said it had not discussed the idea of a currency board with the International Monetary Fund (IMF) to stabilise the baht, as reported by a Thai newspaper on Wednesday.
"We have not been contemplating this at all as we decided to go with the baht's flotation and now that seems to have gone well," BOT spokeswoman Duangmanee Vongprathip said. A senior IMF official said any relaxing of terms for the fund's multilateral $17.2-billion bail-out package for Thailand should be done cautiously. IMF Asia-Pacific director Hubert Neiss said he expected a review of Thailand's efforts at economic reform to be completed by Friday.
The Philippine peso snapped a three-day rise to end lower, pulled down by weakened Asian currencies and dollar demand from oil firms. In North Asia, the Taiwan dollar was also dented as losses in south-east Asian currencies triggered strong buying of the dollar through non-delivery forward trading. The Hong Kong dollarfell through 7.74 to the US dollar and forwards reversed course to head higher amid concerns about Indonesia and tension between the United States and Iraq. The South Korean won remained prey to labour concerns as a trade union said it would launch a general strike on Friday, to protest planned layoff legislation, despite a warning from state prosecutors that strikers would be severely punished.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
