Brokers say IMF loan delay likely to hit stock market

Brokers say IMF loan delay likely to hit stock market

JAKARTA (JP): Trading activities on the Jakarta Stock Exchange
(JSX) are likely to remain gloomy this week on news that the
International Monetary Fund (IMF) will postpone the disbursement
of its US$3 billion second tranche loan package for Indonesia,
stock analysts and brokers have said.

They said over the weekend a report on the delay would
certainly further deteriorate the investors' sentiment in the
local markets which would prompt them to stay away from the
country's paralyzed market.

"The delay will further deteriorate the market sentiment
because the IMF loan is expected to increase market confidence in
the government's economic reforms," said an analyst with a joint-
venture securities.

He said that Indonesia was in need of IMF aid because it would
support the government's plan in implementing economic reforms
and stabilize the rupiah.

The rupiah closed at 10,400 against the dollar last week, off
a low of Rp 12,000 to the dollar and down 23 percent from the
previous week's close of Rp 8,950.

The rupiah has lost by about 70 percent of its value against
the greenback from its level of Rp 2,450 in July last year.

"The delay will also put more pressures on the rupiah," said
Edwin Syharuzad, an analyst with Pentasena Securities.

He said, however, that the market had anticipated the delay
given the fact that the Indonesian government was to go ahead
with a plan opposed by the IMF.

"So, the delay is not big news to the local stock market," he
said.

Eddy Widjoyo, an analyst with Mashill Jaya Securities said
that Indonesia's plan to adopt the controversial currency board
system, for example, has intensified hackles between Indonesia
and the IMF and G-7 members.

Another analyst with a joint-venture securities said that the
Indonesian government was in desperate need to adopt a system
to shore up rupiah's value against the dollar, make imports
cheaper and help local corporate pay off their mounting debts in
rupiah terms.

"But the IMF has threatened to halt the continuation of the
aid package if Indonesia goes ahead with a currency board
system," the analyst said.

"This is really a big dilemma for the country," Eddy said.

On Friday, the IMF said its board would not discuss
Indonesia's economic reform program before April, effectively
delaying a $3 billion payment expected by March 15.

It said there was a need for its review team to discuss
changes in "a few macroeconomic functions" with the new cabinet
to be appointed following President Soeharto's reelection by the
People's Consultative Assembly on March 11.

The IMF made its first $3 billion disbursement of the total
$43 billion in assistance package in November last year, with
a second disbursement due on March 15.

Analysts said that IMF's announcement would kill the market
sentiment, though Minister of Finance Mar'ie Muhammad expressed
optimism on Friday that the IMF would meet the March 15 deadline
for the disbursement of the $3 billion second tranche loan.

But Mar'ie also warned that a delay would damage confidence
and "have a negative impact on efforts to strengthen and to
stabilize currencies in Southeast Asia".

"Such a contradictory news report will make the market remain
uncertain," Edwin said.

"If the market is uncertain, foreign investors will not stay
long in the local market," said Bruce Rolph, head of equities of
Bahana Securities.

Most stock analysts shared the view that the country's ailing
economy might be further eroded if the government did not come up
with clear-cut measures in the coming weeks to improve the
wrecked economy.

They said that although trading activities on the local stock
exchange remain bleak this week, several investors would take the
benefit from a further drop in the rupiah to buy blue-chip shares
such as Telkom, Indosat and Tambang Timah, which are cross listed
in New York and London.

"I think foreign investors will make massive buys on these
stocks when the rupiah declines against the dollar," Edwin said,
pointing out that they would benefit from the price differential
in the domestic and foreign market of the stocks.

"The three stocks accounted for about 40 percent of market
capitalization in the local exchange," Eddy said.

The JSX Composite index closed 29.86 points or 6.1 percent
higher last week to 512.23 from 482.86 the previous week.

Total average daily turnover fell by 8 percent to 569.14
million shares last week from 623.77 million the previous week.

However, the total average daily value rose by 7.4 percent to
Rp 684.88 billion last week from Rp 637.69 billion the previous
week.

State-owned telecommunications firm Telkom rose by Rp 475 to
Rp 3,975, while satellite operator Indosat rose by Rp 1,925 to Rp
14,650, Tambang Timah by Rp 1,500 to Rp 9,050, cigarettemaker
Sampoerna by Rp 1,075 to Rp 6,175 and Gudang Garam by Rp 1,600 to
Rp 12,650. (aly)