Even long-term foreign funds wary of Indonesia<\/p>\n
LONDON (Reuters): There is no big pull-out of money yet, but
\neven foreign investors not normally shy of high risk are sitting
\non their hands when it comes to Indonesia.<\/p>\n
Despite Thursday's well-received budget, a new letter of
\nintent for a three-year program with the International Monetary
\nFund and strong words of western support, religious unrest has
\ncolored the markets' view.<\/p>\n
And with an economic team not yet 100 days old, foreign
\ninvestors doubt President Abdurrahman Wahid's ability to deliver
\nsignificant timely economic reforms through Indonesia's deep
\nthicket of political problems.<\/p>\n
\"The West is making supportive noises, as it does...but
\nIndonesia's task in a very turbulent environment is to settle its
\nproblems in a democratic way that makes for a lasting solution,\"
\nOld Mutual fund manager Andrew Salton said.<\/p>\n
Old Mutual has a neutral weighting on Indonesian equities,
\nthat account for just under two percent of the International
\nFinance Corporation's global emerging market index and, with
\nforecast price\/earnings of 13.3 times are viewed as cheap against
\nAsia's 16.8 average.<\/p>\n
Yet sectarian violence continues to jeopardize economic
\nrecovery in the world's fourth most populous country, and has
\nleft local assets trailing other Asian countries even though --
\non strictly financial terms -- interest rates are expected to
\nfall through 2000 which would otherwise power ahead share prices.<\/p>\n
Stocks, Rupiah<\/p>\n
Jakarta stocks rose 50 percent in dollar terms last year on
\nsigns of economic and political recovery, but are down nearly ten
\npercent in 2000, while the rupiah currency, which was the
\nregion's best performer in 1999, has fallen over 4 percent
\nagainst the dollar this year.<\/p>\n
President Abdurrahman denies the government is in crisis, and
\nsays religious violence in the Spice Islands is part of a
\nconspiracy to distract him from reforms unpopular with vested
\ninterests.<\/p>\n
Yield spreads -- a measure of economic risk -- on the
\ncountry's benchmark 06 Eurobond are now some 60 basis points
\ntighter at 575 bp than they were in October, prior to the
\ncountry's first democratic elections.<\/p>\n
\"Obviously there's realistic caution by investors, and
\nIndonesia's problems aren't going to go away overnight,\" Banque
\nParibas' Senior Asia's economist Graham Neilson said.<\/p>\n
\"But there's a steady current account surplus, the IMF are
\nstill involved, corporates have maintained cash flow in adversity
\nand the banks, despite slow progress, have been cleaned out in a
\nway almost unrecognizable from two years ago.\"<\/p>\n
High risk did not deter investors last year from Russian
\nequities, which leapt ahead 85 percent.<\/p>\n
Even so, analysts say only investors with long time horizons
\nwho bet Indonesia's fundamentals will finally shine through are
\nexposed, and only then in a few stocks that are also listed
\nabroad, such as telecoms operator Indosat.<\/p>\n
\"There are signs of economic recovery filtering through but
\nthere are so many better growth stories elsewhere in the region
\nwhere politics are not so dominant,\" HSBC emerging markets
\nstrategist Ben Rudd said.<\/p>\n
\"The country will remain a regional laggard, but then its
\nproblems have been so much greater and its reforms slower.\"<\/p>",
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"sponsor": "Okusi Associates",
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