Analysts pessimistic about RI recovery
Analysts pessimistic about RI recovery
HONG KONG (Reuters): Indonesia's latest cabinet reshuffle has
dashed hopes of any short-term recovery in asset prices, adding
fresh political risks for investors considering a return to the
country's markets.
Among analysts and commentators there was a widespread sense
of opportunity lost on Thursday, although most observers could
see both good and bad in President Abdurrahman Wahid's new
government line up.
However, overall it was a thumbs down.
"I think it represents a credit negative development in terms
of Indonesia's risk premium," said John Woods, head of research
at HSBC Markets.
There had been widespread hopes that President Wahid's new
cabinet line up, following on the heels of his successful
handling in August of a meeting by the country's top legislative
body, would signal a renewed effort to fix the economy and a rise
in asset prices.
On Wednesday Abdurrahman, often referred to by his nickname,
Gus Dur, named a retired general, Susilo Bambang Yudhoyono, as
chief political minister and an economist, Rizal Ramli, as top
economics minister -- two new powerful positions in the
government.
He appointed a banker, Prijadi Praptosuhardjo, as finance
minister and re-appointed the widely respected Marzuki Darusman
to the sensitive post of attorney-general. Alwi Shihab kept his
post as foreign minister.
But almost immediately analysts saw flaws in the changes.
One key drawback in the new line up was that the new
appointees appeared to be chosen for a closeness to the president
and not necessarily as the best people for the job.
"The choice of finance minister was very disappointing," said
Simon Flint, regional currency strategist at Bank of America in
Singapore.
Analysts are nervous about the apparent sidelining of
Indonesia's largest political party, the PDI Perjuangan, and the
clear lack of endorsement by PDI Perjuangan's leader and
Indonesian vice president Megawati Soekarnoputri for the new
cabinet.
"From a political perspective it looks as if this government
has a limited shelf life," said HSBC's Woods.
"I'm not sure the opposition will sit by and allow Wahid to
dominate," he said.
The sidelining of Indonesia's top political parties in the new
cabinet could bring with it serious legislative problems.
"The concern is that without representation of the two major
parties in parliament in the Wahid cabinet, the president is
likely to face renewed political tensions and delays in passing
important legislation," said Scott Wilson, sovereign debt analyst
at UBS Warburg Asia.
But the good news was that the new Cabinet clearly owes its
allegiance to President Abdurrahman, rather than their respective
political parties.
"The appointees are either relatively apolitical or are
associates of Gus Dur," said Bank of America's Flint.
The new senior ministers, Susilo and Rizal, are also seen as
able to provide strong leadership to the new cabinet.
"I don't regard it as bad that Bambang Yudhoyono is a
coordinating minister," said Gene Galbraith, chief executive and
chairman of Asiawise.
"At the end of the day President Wahid has done a masterly job
of effecting a very rapid transition to new players in the
military," Galbraith said.
Galbraith said the survival of President Abdurrahman in
government still represents the best outcome for Indonesia.
"Megawati would be much worse than President Wahid, who
admittedly has been a bit of a disappointment," he said.
But the rise in political risk is likely to delay the return
of much needed foreign investment to Indonesia.
"I think it's going to take time for people to feel there is a
process in place. I think it's also going to take a recovery
elsewhere, which will make Indonesia appear more inexpensive in
comparison with other assets in the region," said Galbraith.
"Lastly it's going to take a determination on the part of the
Indonesians, in particular the new economic team, to address the
very real issue of corruption," he said.