Rupiah gains unlikely to herald turnaround: Analysts<\/p>\n
SINGAPORE (Dow Jones): While the rupiah surged almost 4
\npercent this week as the meeting of Indonesia's highest elected
\nbody unexpectedly turns out to be in the embattled president's
\nfavor, analysts say this doesn't herald a meaningful turnaround
\nfor the beleaguered currency.<\/p>\n
Although President Abdurrahman \"Gus Dur\" Wahid looks set to
\nsurvive the annual meeting of the People's Consultative Assembly,
\nalso known as MPR, several political uncertainties linger. The
\nMPR meeting will end Friday.<\/p>\n
Gus Dur's move to relinquish the daily running of Indonesia's
\nenfeebled government to Vice President Megawati Sukarnoputri has
\nsomewhat alleviated the short-term political risk, analysts say.
\nNonetheless, reservations about her governing abilities could
\ncast a pall on the rupiah, they add.<\/p>\n
\"Indonesia's problems remain awesome, and Megawati lacks the
\nskill to make such a political dispensation work,\" says Simon
\nFlint, an analyst at Bank of America.<\/p>\n
While the rupiah could strengthen further to Rp 8,200 to the
\ndollar in the short term, and even temporarily rise toward Rp
\n7,800 to Rp 7,900 should it breach that level, it is poised to
\nresume its recent weakness following the MPR meeting, analysts
\nsay.<\/p>\n
Analysts say the dollar could rebound back to as high as Rp
\n9,000 in coming months, but many who have toned down their
\nbearish views in recent weeks now doubt the U.S. currency will be
\nable to stay above Rp 9,000.<\/p>\n
The dollar has lost almost 4 percent this week and trades at
\nRp 8,300 midday Friday, its lowest level in more than two months.
\nThe dollar is down about 13 percent from its peak of almost Rp
\n9,600 in mid-July.<\/p>\n
The rupiah, however, is still about 18 percent weaker than the
\nlevel it was trading at the start of the year, making it the
\nworst performing Southeast Asian currency.<\/p>\n
The recent reversal in the rupiah's fortunes hasn't changed
\nanalysts' bearish views on the currency. \"It does represent some
\nhope, but until I see evidence the political mess gets cleared
\nup, only then will I reverse my call toward a stronger rupiah,\"
\nsays Sani Hami, an analyst at market consultants Standard &
\nPoor's MMS International. \"At the moment, I'm still looking for
\nthe rupiah to weaken after the MPR.\"<\/p>\n
Other efforts to unseat Wahid could continue in the smaller
\nHouse of Representatives, or DPR, through legal investigations
\ninto alleged scandals, which could eventually result in
\nimpeachment moves, some analysts say.<\/p>\n
For months, rupiah watchers had been nervously expecting a
\nshowdown between Wahid and his opponents at the annual meeting of
\nthe MPR.<\/p>\n
But Gus Dur's conciliatory stance during the session this week
\nappears to have mollified some of his critics, if not head off
\nthreats by some of his opponents to impeach him for incompetence,
\nat least for the time being.<\/p>\n
Instead of reeling to fresh post-crisis lows, as some bearish
\ncurrency watchers had predicted earlier this year, the rupiah has
\nstaged one of its best performances in recent weeks after the
\nwily president announced late Wednesday that he would delegate
\nmanagement of day-to-day operations to Megawati.<\/p>\n
But analysts say the euphoria is unlikely to last.<\/p>\n
\"The deal with Megawati has substantially reduced the risk of
\nimpeachment or overthrowing of the president,\" says Flint at Bank
\nof America.<\/p>\n
\"However, the realization of Megawati's new role will probably
\nbe negative in the medium term,\" says Flint. \"We are more
\nconfident now that our year-end target of Rp 8,500 to Rp 8,800
\nwill be attained.\"<\/p>\n
Megawati's limited governing skill is a source of concern:
\n\"Her record in addressing the problems in Maluku has been
\nevidently dreadful,\" says Flint.<\/p>\n
Violence in the Maluku intensified early this year, despite a
\ntrip by Megawati to the province.<\/p>\n
The harsh political realities will also sink in after Wahid
\nreshuffles his cabinet at the end of this month.<\/p>\n
The government will continue to face \"many challenges\" after
\nthe MPR session, says Steve Brice, a currency strategist at
\nStandard Chartered Bank.<\/p>\n
\"These include asset sales targets that have to be met and
\nother unpopular fiscal measures that may have to be implemented,\"
\nBrice says. \"The latter includes a fuel price increase that is
\nexpected in October, which has the potential to feed through to
\nsocial unrest.\"<\/p>\n
Brice says he expects the rupiah to slide to Rp 8,900 to the
\ndollar in three months, and Rp 8,400 in six months.<\/p>",
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