Foreign fund managers warm toward Indonesian Cabinet

Foreign fund managers warm toward Indonesian Cabinet

SINGAPORE (Reuters): Foreign fund managers are giving a
cautious thumbs up to Indonesia as its new reform-minded cabinet
takes up the challenge of getting the country's battered economy
back into shape.

"I hate to use the phrase but I am 'cautiously optimistic',"
Chong Yoon Chou, Singapore-based director of Aberdeen Asset
Management Asia Ltd, told Reuters.

"Medium to long term it is a pretty exciting period, but this
is Indonesia. The risks are high as well. It is a classic
emerging market."

Indonesia is far down the list of fund money, attracting about
US$2 billion in fund investments in its 10 biggest sectors at
September 30, 1999.

It ranked 12 out of 17 Asian countries, excluding Japan, in
the amount of fund company stock investments, according to Lipper
Asia Ltd, a Reuters subsidiary which monitors fund investments.

Apart from exposure to Indonesia through its regional funds,
Aberdeen also has a small country fund devoted entirely to equity
investments in the country.

Chong isn't alone in his optimism about newly elected
President Abdurrahman Wahid's cabinet line-up which includes new
chief economics minister Kwik Kian Gie, a well-respected and
fiercely outspoken economist.

Robert Zielinski, head of Asian bank research in Lehman
Brothers in Japan, said the pace of banking and corporate reform
in Indonesia was likely to quicken under the new leadership.

"It will be faster. This was the case in Korea, it is the same
thing in Indonesia. Indonesia may surprise people on the upside
because we have the people's government in place."

Hong-Kong based investment strategist David Roche told a funds
management conference this week that Indonesia's new cabinet
showed promise.

"We think this is as good a cabinet as you can expect. We
think they know what to do because we have met most of them... in
the essential portfolios. It's pretty clever. Now the big
question, as always in Indonesia, is implementation."

Chong said even during the crisis, Indonesia's equity markets
had yielded some investment gems.

"We are stock pickers, we are very highly selective of
companies, we have always been able to find gems in Indonesia,"
Chong said.

He said Aberdeen's liked safe, liquid stocks like telecom
carrier PT Indosat Tbk, state telecom firm PT Telkom Indonesia
and cigarette firm Gudang Garam.

Chong also cited "hidden jewels" like cosmetic company Mustika
Ratu.

"The biggest risk now is to excited investors who may not know
where to start when they jump in," Chong said.

Roche, who has a "hold" recommendation on investments in
Southeast Asia's most populous nation, said a further influx of
funds was critical for Indonesia.

"Essentially, with the return of the Chinese capital -- call
it US$11 or $12 billion, plus international aid which they are
already getting -- they could end up with a balance of payments
surplus, enough to allow them to build reserves, for some fiscal
stimulus and get on with banking reform," Roche told reporters
covering a fund management conference in Singapore.

Many of Indonesia's wealthy ethnic Chinese fled the country
after they became targets of bloody unrest in the midst of
economic and political crisis in 1998, taking their fortunes with
them. Their return would be a shot in the arm for the economy.

Roche's Independent Strategy projects an overall balance-of-
payments surplus of $5.3 billion for fiscal 1999/2000 for the
country and a surplus of $5.5 billion for 2000/2001.

He said the cost of reviving Indonesia's banks looked huge as
a proportion of gross domestic product, but in dollar terms it
was much less than South Korea's restructuring bill.

"When you talk about the banking system, 70 percent of the GDP
is bad debts. It sounds dreadful if you are sitting in Jakarta,"
Roche said.

"But it's only $70 billion -- even less, about $60 billion --
so it's only equal to Daewoo's debts. Essentially if you have the
goodwill of the world and you are doing the right thing, it is
financeable."

Both Roche and Chong estimate the rupiah is likely to stay
around its current levels at around 6,000 rupiah to the dollar.

"It's about there at 6,000 and one should be expecting some
stability in the currency. It is up to the stock market to take
the next leg-up now," Chong said.

So far this year, the Jakarta stock index is up 45 percent,
the best performer among Asia's crisis-hit markets.