Fund managers remain wary about Indonesia

Fund managers remain wary about Indonesia

SINGAPORE (Dow Jones): Despite the resignation of Indonesia's President Soeharto Thursday, fund managers say it's not time yet to plough funds back into Indonesia as fears of continued political and economic upheavals linger.

While Soeharto's decision to step down may defuse some of the political tensions, fund managers say it doesn't do much to resolve the country's manifold economic problems.

Concerns now focus on the new president, B.J. Habibie, and whether he proves a temporary or a long-term replacement for Soeharto, fund managers say. There are questions about his ability to steer the country through the crisis and implement the forms mandated by the International Monetary Fund (IMF).

"We see a lot of uncertainty even though Soeharto has stepped down," said Viola Tam, Vice-President of BT Fund Managers (Hong Kong) Ltd. "We don't know if (Habibie) has the will to carry out the reforms of the IMF. And we believe (the situation) is still pretty risky."

Habibie was sworn in as president Thursday after Soeharto resigned, ostensibly to serve the rest of Soeharto's five-year term through to the year 2003. But many opposition figures and political analysts see Habibie as a temporary president, arguing that he lacks a secure power base and is too closely identified with the previous regime.

Fund managers say they're adopting a "wait-and-see" approach before increasing their investment exposure to Indonesia, which has mostly been cut to very low levels. All eyes are on what reforms the new president and his cabinet will introduce, they add.

"It's not so much the Cabinet lineup (at issue), that obviously (had to) change," says Ronnie Teo, executive director of DBS Asset Management Ltd. "The question to ask is -- is that enough and what reforms will be instituted?"

Earlier yesterday, Habibie appointed a new cabinet which retained the respected Ginandjar Kartasasmita as Coordinating Minister for Economy, Finance and Industry. He dropped Soeharto crony Bob Hasan as well as Siti Hardjanti Rukmana, Soeharto's daughter, from the cabinet.

But fund managers say Habibie had little choice but to remove Soeharto's cronies and that it remains to be seen whether the shakeup represents more than a superficial change.

"This is a change of face, rather than a change of system," says Robert Barker, fund manager with National Mutual Funds Management (Asia) Ltd. in Hong Kong. "We need to see more of what Habibie will be proposing and the types of policies he'll introduce."

Exposure to Indonesia has generally been trimmed to a negligible proportion of the total equities portfolio, many fund managers say. Most Indonesia holdings were sold in the early stages of the Asian crisis.

Barker says his company's equities exposure to Indonesia is not more than 1 percent of many accounts, and down to zero in some cases. That compares with Indonesia's 3 percent weighting in the benchmark Morgan Stanley Capital International Far East Free Index -- a key measure for fund managers.

With just as many bargains elsewhere in Asia, fund managers say there's little reason to invest more in Indonesia now.