Budget doubt weigh against rupiah, says analyst

Berni K. Moestafa, The Jakarta Post, Jakarta

The rupiah's timid move upward may be hit by heightened concerns of this year's privatization and asset sales targets in the state budget, as a shortfall in these revenues could dash hopes for foreign investment replenishing the thin dollar supply here, according to one local analyst.

Head of debt income at PT Vickers Ballas Indonesia Wiwan Wiradjaja said the concerns stemmed mainly from the signs that a planned sale of cement maker PT Semen Gresik and PT Bank Central Asia (BCA) this year may run aground.

Consequently, he said, market players have begun to adjust their forecast of the dollar supply in the market downward.

"Some have began to switch to dollars, as they have taken into account the possible failure of selling Semen Gresik and BCA. Others are sure to follow this week albeit in lesser dollar amounts," he said over the weekend.

Wiwan said this outlook was hurting the rupiah, which was already under pressure from corporate dollar demand.

The proceeds from the sale of Semen Gresik and BCA should help cover this year's state budget deficit.

Selling a 51 percent stake in Semen Gresik is expected to earn the government some US$520 million, while BCA's 51 percent stake is reportedly valued at around Rp 5 trillion (about $480 million).

Some analysts also said a successful sale of the two companies would significantly bolster market confidence in the government.

Inflow of more foreign investment spells fresh dollar supplies in the money market, reducing the rupiah's volatility.

Over the past few months, however, the planned sale of Semen Gresik and BCA had suffered serious setbacks.

Last week, the government admitted to foreign creditor nations that it may not complete the BCA sale on time.

Foreign investors showed slackened interest in BCA, raising questions over the revenue target the government hopes to achieve from the sale.

As regards Semen Gresik, it said troubles with regions opposing the sale were hampering efforts to sell the company.

Wiwan said these concerns were partly reflected in last week's sharp drop of the rupiah, which had briefly touched the 11,000 level on Monday.

The unit regained ground during the rest of the week, as it closed Friday's trading at 10,345.

For this week, he estimated the rupiah to trade at a range of between 10,300 to 10,500.

On the stock market, stock analyst Zulfiqar at Mandiri Sekuritas predicted the rupiah's movement to maintain its driving force behind stock trading this week.

Zulfiqar estimated the Jakarta Stock Exchange (JSX) Composite Index to hover between last week's closing level of 377.34 and around 389.