Indonesia’s Currency Drops 5% as Country Floats Rupiah
Indonesia’s currency plunged nearly 5% against the dollar on Thursday after the central bank floated the rupiah in hopes of halting months of speculative attacks against Southeast Asian currencies.
The move follows Thailand’s shocking devaluation of its currency, the baht, in early July, which has led to downward pressure on most Southeast Asian currencies as speculators have bet that the trend would spread.
In New York trading Thursday, the rupiah was quoted at 2,770 to the dollar, down from 2,650 on Wednesday.
The rupiah’s value has tumbled 14% since July 1, when a dollar bought 2,432 rupiah.
Finance Minister Mar’ie Muhammad said the government decided to float the rupiah after watching its Asian neighbors try, but fail, to defend their currencies at exorbitant costs. The Indonesian central bank spent $500 million Wednesday trying to maintain the rupiah’s value against the dollar.
Thailand, Malaysia, Indonesia and other Southeast Asian countries have been troubled by rising trade deficits, slowing growth and tough export competition from China. Although currency devaluation slashes a country’s purchasing power, it also makes the country’s exports cheaper abroad.
Still, the Indonesian stock market’s main index plunged 2.4% on Thursday, to 643.01. It has fallen 12% since July 1.
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