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)