Indonesia pledges free capital flows

By Adriana Nina Kusuma

JAKARTA (Reuters) - Indonesia's central bank pledged on Friday to respect the free movement of capital, seeking to plug seeping investor confidence as the embattled rupiah hit a new decade low and authorities swooped in to save a small bank.

Marking a potential new worry for Southeast Asia's biggest economy, the government decided to take over Bank Century Tbk after what authorities called a deterioration in its assets. It is the first local bank to be taken over in this way since the Asian crisis in the late 1990s.

The rupiah, which has lost more than a fifth of its value against the dollar this year, fell in early trade on Friday to its weakest since August 1998, pressured by the fear of capital outflows and despite reassurance from policy makers.

"We are committed to our free capital movement law," central bank governor Boediono said, dismissing speculation about plans to bring in capital controls.

Indonesian officials have scrambled to contain a crisis sparked by fears that Indonesia could become the next casualty of a global flight from risky assets.

The central bank has repeatedly intervened to support the rupiah and last week tightened foreign exchange buying rules.

The country's oil regulator said on Thursday it would order contractors to use local banks to deposit billions of dollars for energy projects in order to help the currency.

"We will remain in the market and we will use our ammunition," Boediono said, adding that reserves stood at a "comfortable" $50.4 billion (33.9 billion pounds).