Currency analyst sees rupiah constrained by political moves

Currency analyst sees rupiah constrained by political moves

JAKARTA (JP): President Abdurrahman Wahid's move last week to
fire a number of Cabinet members will likely reverse the rupiah's
upward movement against the U.S. dollar, currency analysts say.

Currency analyst Martin Pangabean said Abdurrahman's recent
reshuffling of his Cabinet had caused worries that he would go
ahead with his plan to declare a state of emergency.

"The market did not see it (the reshuffle) coming," he told
The Jakarta Post on Friday, adding that the created uncertainties
had eroded confidence in the rupiah.

The rupiah has been on a upward trend since the House of
Representatives' plenary session on April 30 opened the way to
the President's impeachment at the upcoming People's Consultative
Assembly's special session.

The session, set for August, is expected to dispel the fog
over the country's future leadership when the President is asked
to present his accountability.

Analysts believe a change in the country's leadership would at
least create more confidence in the country's ailing economy.

Last week the rupiah ended at 11,325 against the U.S dollar,
up from the previous week's closing at 11,450.

But rumors of a sudden Cabinet reshuffle just before the
market closed on Friday pushed the local unit down from
Thursday's closing at 11,130.

Ahead of the long weekend, investors were also seen stocking
up on dollars to factor in more political surprises.

Martin said that while he could not see any potential upsides
for the rupiah, there was no immediate reason to unload the local
unit just yet.

"The market needs time to absorb what has just happened," he
said.

President Abdurrahman said that the Cabinet reshuffle was an
attempt to bridge the gap with his ally-turned-opponent Vice
President Megawati Soekarnoputri, who has publicly expressed her
readiness to take over the top job.

Former communications minister Agum Gumelar was appointed as
coordinating minister for political, social and security affairs,
replacing Susilo Bambang Yudhoyono, whom the President once said
had the potential to replace him.

Speculation rose that Susilo was dismissed for his refusal to
impose a state of emergency, under which the President could
dissolve the House and thereby get rid of his political
opponents.

With the appointment of Agum, the President hopes to reverse
the unfavorable developments.

Agum has close ties with Megawati, and once led the Army's
Special Force (Kopassus), suggesting his influence over the
military.

With the military distancing itself from the President, his
threats against legislators almost ring hollow.

The President also lost the support of the police after his
move to suspend National Police chief Gen. Surojo Bimantoro. The
police are standing behind Bimantoro in his refusal to step down
at the President's order.

Legislators said that by law, any reshuffling in the National
Police must have House approval.

Friday's Cabinet reshuffle also saw the dismissals of Sarwono
Kusmaatmadja as the minister of maritime affairs and fisheries,
and Marzuki Darusman as the attorney general. The former was
active in Golkar, the latter is currently the party's deputy
chairman.

Marzuki was replaced by Baharuddin Lopa, a human rights
advocate who also opposes corruption.

According to Martin, the appointment of Agum and Lopa boost
the chances of reconciliation between the President and his
deputy.

"The market wants to see what breakthroughs these two men can
achieve," he went on to say.

However, Martin continued, selling pressure could arise from
corporate demand. A thin dollar supply also makes the rupiah
prone to steep falls.

"The market is thin, corporate demand could send the dollar to
12,000," he warned.

Currency observer Rico Menayang said on Monday that with the
current political development, most market players would sideline
the local currency market.

According to him, fears of inflation could trigger corporate
rupiah selling in exchange for dollars needed to import raw
materials.

May inflation rose by an alarming 1.13 percent on top of a
declining export revenue needed to replenish the local dollar
supply.

Rico said the drop in exports was partly because of fewer
dollar-denominated investments made, which would have otherwise
enabled manufacturers to maintain production levels.

Meanwhile, capital market observer Dandossi Matram said the
market index would fall slightly as a result of Friday's Cabinet
reshuffle.

"If it (the index) falls, I don't think it will go lower than
380," Dandossi said.

He said that after the Cabinet reshuffle, President
Abdurrahman had few options left to surprise the market.

"There are only two ways he could surprise us: declaring a
state of emergency or announcing his resignation," he said.

He estimated trading would be flat this week, with the
potential of the index recovering to 400. The Jakarta Stock
Exchange Composite Index closed last week's trading at 396.51, up
from 390.12. (bkm)