RI following the right path: Analysts<\/p>\n
LONDON (Reuters): Indonesia's latest steps to restore
\nconfidence in its ailing economy are a move in the right
\ndirection but its battered currency may be slow to react, London
\nanalysts said.<\/p>\n
The economic and political uncertainty hanging over Indonesia,
\nin terms of its hugely indebted private sector and President
\nSoeharto's grip on power, still looms large.<\/p>\n
But the reform package announced by Soeharto on Thursday was a
\nnecessary, if not sufficient, move.<\/p>\n
It kept the International Monetary Fund and the United States
\non board while a way to tackle the crisis of distressed private
\nsector debt and a troubled banking system is formulated.<\/p>\n
More immediately, the damage done by the announcement last
\nweek of the widely-criticized 1998\/99 budget at least has been
\nrepaired, analysts said.<\/p>\n
Also encouraging were signs that the Soeharto family's
\nbusiness interests are no longer sacrosanct in the process.<\/p>\n
Reforms to the local its banking sector are expected to be
\nannounced over the coming days and will be awaited by many
\ninvestors before a final opinion is formed.<\/p>\n
\"If the measures we've seen today are implemented promptly,
\nthen this is very good news for the economy over the medium
\nterm,\" said Sara Zervos, emerging market analysts at BZW in
\nLondon.<\/p>\n
\"The initial market fall has to be understood in the context
\nof the exaggerated market expectations before the package and the
\nrelentless local demand for dollars to repay outstanding dollar
\ndebts,\" she said.
\n\"Unfortunately, the latter is a factor that will be with the
\nmarket for some time to come.\"<\/p>\n
Dollar\/rupiah probed below 7,000 per dollar in the immediate
\naftermath of the package from about 7,200 bid at the open.<\/p>\n
But it retreated sharply from there in London hours later to
\n8,800\/9,300 -- close to where it traded before Wednesday's sharp
\nrally of more than 20 percent.<\/p>\n
Jakarta stocks ended down 4.14 percent on the day.<\/p>\n
\"Market expectations were far too high in the run-up to the
\nannouncement. Although the package looks reasonable, we've seen
\nthe market quick to take profits as a result,\" said Graham
\nNeilson, Asia economist at Banque Paribas.<\/p>\n
Traders said there had been an element of buying on the rumor
\nand selling on the fact.<\/p>\n
Following talks with IMF officials earlier in the week,
\nSoeharto announced revisions to next year's budget.<\/p>\n
The assumed dollar\/rupiah rate for the financial year was
\nraised to 5,000 from 4,000, the economic growth forecast was
\nlowered to zero from four percent and the inflation estimate was
\nlifted to 20 percent from nine percent.<\/p>\n
The revisions were accompanied by reforms elsewhere.<\/p>\n
Soeharto said the government would end monopolies in basic
\ncommodities except for rice, cut fuel subsidies and end tax
\nbenefits for a national car company run by one of his sons.<\/p>\n
Soeharto also said the government would not help bail out the
\nheavily indebted corporate sector and the central bank would be
\nallowed more autonomy in conducting monetary policy.<\/p>\n
\"There may also have been some disappointment in the fact that
\nthere was no obvious detail about how the debt situation would be
\naddressed and no mention of reforms to the banking sector,\" said
\nan analyst at a UK bank.<\/p>\n
\"But overall this was a much as could be expected for now.\"
\nIMF Managing Director Michel Camdessus said he was positive
\nIndonesia had taken the right steps and he saw potential in the
\nmeasures for turning the situation around.<\/p>\n
Camdessus said the new rupiah target of 5,000 was reasonable
\nin the next few months.<\/p>\n
Yet, investors still need some convincing and the early view
\nfrom New York contrasted starkly with Camdessus's optimism.
\nNew York-based market players said the absence of banking sector
\nreforms, the public sector debt problem and concerns about the
\nsuccession to Soeharto, in power since the mid-1960s, have to be
\naddressed.<\/p>",
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