Analysts express mild optimism about rupiah

Analysts express mild optimism about rupiah

JAKARTA (JP): The rupiah may gain some strength as market
players reserve mild optimism that legislators' key plenary
session this week could open the way for Vice President Megawati
Soekarnoputri to assume the country's leadership, analysts said.

They said the latest political developments hinted Megawati's
readiness to replace President Abdurrahman Wahid.

Her presidency would restore badly needed political stability,
said currency analyst Farial Anwar over the weekend.

"Politics is heading in the direction the market considers to
be right," Farial told The Jakarta Post.

He said that, over the past two weeks, market players had
adopted a wait and see stance in anticipation of the political
situation heating up.

Trading, he said, was range-bound between 11,300 and 11,500,
where it is expected to remain until legislators have convened on
May 30.

"Once May 30 passes, a new signal will emerge (from the
plenary session) on which the market can trade," Farial said.

Another vote of no confidence against President Abdurrahman by
legislators will spell the end of his 19-month administration.

The House is likely to press for a special session of the
People's Consultative Assembly, which is the only body that can
impeach the president. More than half of its members are
legislators.

Farial said that up until now the political developments
unfolding had been in line with the Constitution, which was as
the market had hoped.

The latest development was last Friday's power-sharing offer
from the President to Megawati. Refusal of the offer indicates
her readiness to take a shot at the presidency.

Megawati leads the House's dominant political party, which is
also supporting the impeachment proceedings.

Concerns over violence resulting from efforts to oust the
President prevail, though not as strong as before, Farial
explained.

The market, he said, has become more skeptical of the
president's threats.

Abdurrahman's political heartland, East Java, is home to
supporters of the President who claim that they are prepared to
fight to the death in defense of his leadership. Many fear that
violence could cause chaos in Jakarta.

The group's threats of mass mobilization to the capital,
however, have so far not materialized.

On Saturday, the President further warned that his removal
would lead to disintegration of the country, including the
separation of East Java.

"He is just bluffing, the market won't react much to his
threats," Farial said.

Amid this political uncertainty, Farial continued, Bank
Indonesia is seen to be maintaining a passive role in the market.

The central bank is reacting to market trading rather than
being proactive to dictate the market's direction, he said,
adding that, while market players lacked fresh leads, Bank
Indonesia should have intervened to uplift the rupiah.

"If everyone is already bullish on the dollar, intervention is
futile," he said, but commented that Bank Indonesia's limited
foreign reserves only allow for stabilization.

"What they're (Bank Indonesia) doing is just preventing the
rupiah from falling too sharply. There doesn't seem to be any
intention to boost the rupiah through intervention," he
explained.

For this week, he estimated the rupiah to gain, though only
slightly.

In last week's closing, the rupiah fell to Rp 11,450 against
the U.S. dollar, slightly down on its previous week close at Rp
11,370.

"But if Megawati accepts the power-sharing deal, meaning that
Gus Dur remains in office, the market will react negatively," he
said, referring to the President by his nickname.

The President, he said, could also carry out his threats to
declare a state of emergency followed by a decree to dissolve the
House. Under this scenario, the rupiah would fall, he said.

The President has set himself on a collision course with the
House after he flatly refused to respond to a second memorandum
of censure, which follows a first memorandum issued against him
in relation to two financial scandals.

President Abdurrahman has continued to maintain his innocence
over involvement in the scandals.

But many believe that the pressure to impeach him has more to
do with his erratic leadership and off-hand governance style.

On the stock market, the outlook is bullish too with analyst
Zulfiqar at PT Mandiri Sekuritas upbeat that the index will gain
more.

"People expect a special plenary session of the MPR (People's
Consultative Assembly). They want Megawati to rise," he said.

According to him, this expectation was reflected in last
Friday's unexpected 9 percent surge of the Jakarta Stock Exchange
(JSX) Composite Index.

On Friday, the JSX index rose to end the week at 390.12, up
from its close at 376.79 in the previous week.

"People anticipated (the political development) by taking
position and scooped blue chips while they were cheap," he
explained.

Among the top gainers during Friday's rally were bellwether PT
Telkom Indonesia, PT Astra International, PT Indosat Corp. and PT
Indofood Sukses Makmur.

Zulfiqar predicted the market would maintain its upward trend,
with the index possessing a good chance of breaking the 400 level
riding on the positive momentum.

Separately, a local security firm dealer was more cautious. He
said fears of street violence among pro and anti-President
Abdurrahman groups might cap the market's positive sentiment.

The dealer expected trading this week to test the market at
400, with higher chances of it falling to 360 amid continued
political uncertainty. (bkm)