Indonesian rupiah hits low

The rupiah has come under pressure on economic concerns

The Indonesian rupiah fell 4% on Wednesday and hit a 16-month low in the wake of a bomb blast at the attorney general's office late on Tuesday.

Traders said the news caused panic on the foreign exchange market, sparking dollar buying by investors.

The bomb blast took place in the building where the youngest son of former president Suharto had just been questioned over allegations of corruption.

And the market panic increased on Wednesday with the discovery of more bombs in the same building.

"Volumes were very low at first but we saw demand for dollars really building up and some local players were getting very panicky," said a dealer at an Indonesian bank.

The dollar closed against the rupiah on Wednesday at 9,395, up from 8,956 late Tuesday.

IMF news fails to boost

Even news that Indonesia had finished a draft of its next letter of intent to the International Monetary Fund failed to stop the currency's slide.

The country must sign an agreement with the IMF before it can receive its next $400m payment, which comes as part of of its three-year $5bn loan.

The last payment was delayed because of Indonesia's slow moving reforms.

Economic and political concerns have been weighing on the currency for the last few months, causing the rupiah to successively hit new lows.

Traders have cited concern over President Abdurrahman Wahid's management of the economy as a major factor in the growing loss of confidence in Indonesia.

Call for intervention

Some dealers called on the central bank to intervene to stabilise the currency as they predicted more weakness ahead.

"People who need to fill dollar orders want to do it right now because they think the rupiah is going lower," a dealer at a European bank in Jakarta said.

"If we see any rupiah recovery at all people will be buying dollars immediately, which will send it lower again."

The row between President Wahid and the head of the Indonesian central bank, which led to the bank chief's arrest last month, has not boosted investor confidence.

Mr Wahid's economic advisors are also believed to be divided on whether they should defend the value of the currency.

The weakness in the rupiah is discouraging foreign investment and raising the prices of imported goods for the poor.