Fresh loan commitment will not boost trade in local stocks

Fresh loan commitment will not boost trade in local stocks

JAKARTA (JP): Trading activities on the local stock market are
expected to remain flat this week despite the signing of the
US$1.5 billion loan agreement with the Asian Development Bank
(ADB) and a new accord with the International Monetary Fund
(IMF), stock analysts and brokers said.

They said that even though the two agreements were positive in
nature, they would not be able to immediately improve investor
sentiment toward the country's battered market.

The Asian Development signed a $1.5 billion loan accord with
the Indonesian government Friday to finance the country's budget
deficit and strengthen the balance of payments following an
accord signed between the IMF and the Indonesian government the
previous day.

But the IMF executive board has yet to confirm the
disbursement of the next $1 billion tranche; its decision is
expected in the middle of next month.

The IMF has already disbursed $4 billion out of its $10
billion commitment, which is part of the total $43 billion
bailout package pooled together by the IMF, ADB, World Bank and
other major donors.

Head of research of SG Securities Indonesia Goei Siauw Hong
said that despite such positive news, offshore fund managers
remained cautious over the country's political and social
uncertainty.

"The country is not only struggling to fight against the
economic crisis but political crisis too," he said pointing out
political measures introduced by the government so far had not
yet borne any fruit.

He said that the country's macro-economic outlook with
inflation predicted to skyrocket to 85 percent and economic
growth at minus 15 percent this year would further discourage
foreign investors from flocking to Indonesia.

"Indonesia's problems are so huge that it has to address both
economic and political crises at the same time," he said.

Head of research of Mashill Jaya Securities Tjandra Kartika
shared Hong's view, saying that the country's efforts to escape
from of its dire economic predicament were being hampered by
mounting concern over political and social instability at home.

"Investors gave a cool response to the two accords last week
because they still have fears over the country's political and
social uncertainty," he said.

Rupiah

The rupiah remained weak closing at 14,800 on Friday, 400
points lower than the previous close at 14,400 and stock prices
on the local exchange remained relatively unmoved last week.

"This indicates that foreign investors are not impressed with
the progress in the country's political situation," he said.

He said that fears over possible social unrest due to soaring
unemployment and escalating prices of basic essentials would
further affect the country's economic outlook.

Riot

Reports late last week that dozens of rioters attacked and
damaged a shopping center in Samarinda, East Kalimantan, after
hundreds of fishermen set fire on trawlers, warehouses and an
office in Gabion, Medan, North Sumatra.

"Rising unemployment and higher prices will likely trigger
similar riots in the coming months," another analyst said.

Another analyst said that certain local investors, mostly
ethnic Chinese, who fled the country in May after massive riots
and looting in Jakarta, had not returned home yet because they
were still unsure the country's political and social security.

"These people took between US$10 billion and $25 billion with
them overseas," he said.

Most stock brokers said that trading activities on the local
bourse would be quiet this week with most local investors placing
orders for short-term speculative trading.

"Daily trading volumes and transactions will continue to
decline to around Rp 100 billion now compared to Rp 500 billion
before the crisis began last year," a broker with a local
securities firm said.

The JSX Composite Index closed 5.42 points or 1.2 percent
higher at 430.87 last week from 425.45 points the previous week.

But daily average turnover fell 24 percent to 182.97 million
shares changing hands last week from 242.42 million the previous
week.

Daily transaction value also fell sharply, by 50 percent, to
Rp 161.39 billion (US$11.13 million) last week from Rp 325.61
billion the previous week. (aly)