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.