Financial market give cool response to IMF package

JAKARTA (JP): Indonesia's financial market responded coolly yesterday to the long-waited approval for the disbursement of the International Monetary Fund's second US$1 billion tranche to Indonesia.

Securities analysts said the approval for the release of the IMF-brokered bailout fund was overshadowed by news of sporadic riots in several parts of the country.

The news of the IMF's loan disbursement should have generated more confidence in the country's battered economy because only with such a facility can Indonesia overcome its financial problems.

"But the reality is different. Investors ignore the IMF's move as they are more concerned about the escalating political tension," one analyst said.

Fadjar Limin Sutandi, the head of research of Sigma Batara Securities, said that the heated political situation undermined the positive signal from the IMF.

University students in the country's major cities have staged demonstrations almost daily, urging the government to cut skyrocketing prices and introduce major economic and political reforms.

Demonstrations in several cities, especially in the North Sumatra city of Medan, have turned into rioting, not only involving students but also other segments of society.

The government increased fuel prices by between 25 percent and 71.43 percent and electricity rates by 20 percent yesterday to reduce subsidies and control the state budget deficit.

Brokers said that investors feared the hikes in power rates and fuel prices, which has resulted in substantial increases in public transportation fares, would ignite more riots.

"Clashes and violence between students and security officers scare away foreign investors," a chief broker with WI Carr Indonesia Securities said.

Stock brokers said that stock prices on the Jakarta Stock Exchange (JSX) tumbled 2.42 percent yesterday.

The chief broker also said most foreign brokerage firms stayed mostly on the selling side for the whole trading day yesterday as most foreign investors unloaded their blue chip stocks.

The broker said that large-capitalized stock like Astra International, Indosat, Tambang Timah, telecommunication firm PT Telkom and giant conglomerate fell yesterday.

The stock prices of the country's largest automaker, Astra International, shed Rp 200 to Rp 1,275, Indosat slid Rp 25 to Rp 10,900, Tambang Timah fell Rp 375 to Rp 5,725, PT Telkom fell Rp 125 to Rp 3,000 and Bimantara Citra fell Rp 75 to Rp 825.

The JSX composite index ended 2.42 percent or 10.83 points lower yesterday to 435.16 points on a total turnover of 333.31 million shares worth Rp 329.99 billion (US$41.28 million).

Sigma Batara's Fadjar said the country's market was predicted to fall further in the days ahead as political tension would continue to hamper the country.

"With more negative news flooding into the market, the main price index might fall to as low as a 350 point level," he said.

While stock prices declined, the rupiah in the currency market closed at 8,000 to the U.S. dollar yesterday, slightly lower than its close at 7,950 the previous day, currency dealers said.

They said people in the currency market did not respond positively to the release of the IMF tranche as the country was plagued by many problems, such as mounting private sector debt.

"Though the release of the IMF tranche is good, there has not been any solution yet to resolving the country's private sector debt," a chief dealer with a local private bank said. (aly)