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Rupiah floated, then sinks
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August 15, 1997: 2:26 p.m. ET
Indonesian currency is latest in region to be battered; drag on yen is seen
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NEW YORK (CNNfn) - It seems to be a recurring story in southeast Asia. A country floats its currency, which then falls precipitously along with other regional currencies.
This time it is Indonesia, which said Thursday it would allow its rupiah to float in a wider range. Before this, it was the Philippine peso; before that, the Thai baht.
The rupiah fell nearly 7 percent to an all-time low of 2,950 to the U.S. dollar, resulting in a run on dollars at money exchanges around Indonesia.
Despite these difficulties, it was necessary for Indonesia to take these measures, explained Keisuke Aso, currency analyst with the Bank of Tokyo.
"It became more and more difficult [for Indonesia] to keep the currency into certain ranges because money flow became more and more integrated with the world market," he said, noting that at some point it would have become too expensive for Indonesia to maintain the rupiah's range.
Southeast Asian currencies also were battered Friday, with the Malaysian ringgit dropping to a record 2.8000 to the U.S. dollar before rebounding to about 2.7825.
The Japanese yen was down Friday as well, falling more than half a yen to 117.37 to the dollar. "It looks like we're seeing a situation where the dollar is moving up over some concerns about the Japanese recovery," said David Jones, chief economist at Aubrey G. Lanston.
"It's been very slow, very uneven. There's still some question about deregulation and its effect on the financial system."
Indirectly, the troubled southeast Asian economies could be the cause of the yen's trouble, said the Bank of Tokyo's Aso, noting the strong economic presence Japan has in the region. Japan's investments abroad suffer along with southeast Asian economies.
"Japan is very dependent on these countries," he said. "Because of the problems in the southeast Asian countries, the recovery of the Japanese economy will be delayed."
Interestingly, the Thai baht, which started much of the uncertainty when it was floated, stayed steady Friday at 31.85 to the dollar.
It cannot be said that Thailand, and its stock market, have bottomed out, however, according to Donald Reed, president of Templeton Investment Council.
"A lot of the balance sheets in many of the companies [in Thailand] which we would have otherwise expected to show value just aren't there in the way they should be," said Reed. Despite this assessment, Reed said his firm was actively, but cautiously, looking at the Thai market.
-- Randy Schultz
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