Analysts think rupiah can stand heat

JAKARTA (JP): Pressure will remain high on the rupiah this week, though a free fall of the local unit is unlikely despite fears of street violence ensuing from the predicted move of legislators at the House of Representatives to censure President Abdurrahman Wahid a second time, analysts said.

The analysts said the financial market has discounted the risk of clashes between supporters and opponents of President Abdurrahman.

The market had stocked up the dollar long before, on reports that President Abdurrahman's supporters would enter the capital, the analysts said over the weekend.

The police must take sufficient measures to prevent bloodshed from happening, one dealer at a foreign bank said.

"If we're talking minor clashes, tear gas and scuffles with the police, then it's really nothing," he said.

According to him, such clashes could cause ripples on the rupiah, yet for a short period only.

Political tension seeping into the grassroots level has kept a tight reign over the rupiah as the local unit broke the 10,000 mark against the greenback in March.

On Thursday two weeks ago, the rupiah sank to 11,000 as President Abdurrahman warned of a national rebellion. It quickly lost ground to flirt with the 12,000 mark on news that his supporters had begun arriving in Jakarta.

Ever-worsening politics tipped the rupiah to the 12,000 level last Thursday.

But dealers said that Bank Indonesia's intervention pulled the local unit back into the 11,000 territory on Friday.

The rupiah ended last week's trading higher at 11,800 from its previous week's finish at 11,925.

The dollar is overvalued, said the dealer said, adding that the market would dump the foreign unit on profit-taking if all is quiet on Monday.

He predicted that Bank Indonesia would seize this momentum to intervene, and break the pressure on the local unit.

"However, under the worst scenario, the rupiah could go anywhere, there are no restrictions," the dealer went on saying.

He said a replay of the rupiah's free fall to 17,000 against the U.S dollar in 1998, is possible should chaos cripple the capital.

"May is a month that has its own meaning in our history," he said of the 1998 May riots that triggered the downfall of former president Soeharto.

Today's House of Representatives special plenary session is almost certain to issue a second censure against President Abdurrahman.

The second memorandum followed President Abdurrahman's alleged involvement in two financial scandals, over which he denied any wrongdoing.

As the plenary session neared, support from his most vital ally, Vice President Megawati Soekarnoputri, was also seen to be faltering.

She heads the party that sponsors the impeachment proceedings against President Abdurrahman.

In a last effort to soften the opposition's stance, the embattled president addressed the nation on television last Friday.

He called on his political enemies not to oust him, because a change of leadership was no solution to the country's crisis.

Currency observer Rico Menayang painted a brighter outlook for the rupiah, saying it's possible the unit to trade between 10,500 and 11,500 this week.

According to him, chances are slim for the capital to descent into chaos, given the ample time police have had to prepare themselves.

"I don't think the rupiah will fall to trade at 15,000," he said.

Rico said profit-taking this week may pull the rupiah off its current levels to around 10,000.

He added though, that the government would unlikely let the rupiah strengthen to 9,000, as it would hurt the country's export gains.

On a more pessimistic note, he said the rupiah could see itself at between 12,000 to 14,000 should street violence erupt.

He further warned that if violence does get out of control, the rupiah would fall quickly to 15,000 and beyond.

The country's thin foreign reserves, makes for a weak defense against dollar hunting, despite thin trading, he added.

Rico said the market awaited a fresh dollar supply from a long delayed loan tranche worth US$400 million from the International Monetary Fund (IMF).

But concerns that the IMF is pending its loan tranche on an improved political climate have been confirmed.

IMF managing director Horst Koehler said the fund would retain its lending, until Indonesia was able to restore political stability.

"No international support works if there isn't a minimum degree of political stability," he was quoted as saying by Dow Jones last week.

Before, the IMF has been saying it only pinned its loan disbursement on progress made in Indonesia's economic and legal reforms.

But some analysts suspected the IMF flinched due to uncertainty over the current government's future.

Meanwhile, stock analyst Erwinda Anggraini at a foreign securities firm said the local market could recover this week, providing the police maintain security.

According to her, past outbreaks of violence in Jakarta erupted unexpectedly, and therefore she is confident of the stock market's recovery.

"There is still fear over violence, and trading will be very slim," she added.

Erwinda expected the index to hit 360 if the House plenary session goes well, and to drop to 330 if clashes occur.

On last week's trading, the Jakarta Stock Exchange Composite Index rose to 351.52, from its previous week's closing at 342.85. (bkm)