Funds parked in safe havens await political stability

Funds parked in safe havens await political stability

SINGAPORE (Reuters): Billions of dollars Indonesian businessmen sent to safe foreign havens during the country's political and economic crises are unlikely to flow back in significant amounts immediately after the presidential election.

The money could make a significant difference in Indonesia's efforts to recover from economic difficulties that began in 1997. But analysts said on Wednesday that Indonesia's wealthy are expected to wait until the dust settles and they have a clearer view of how the new government handles a huge pile of problems before repatriating funds.

The analysts estimated tens of billions of dollars were taken out of Indonesia by businessman, mostly ethnic Chinese, since 1997, when regional economic problems hit Indonesia hard and sparked political turmoil.

A big chunk of the fleeing funds was parked in Singapore, they said.

"If some of this money goes back, it will bolster the rupiah and ease the pressure on interest rates," said P.K. Basu, a senior regional economist at CS First Boston.

"There is a prospect that the funds will start going back. But (these businessmen) might wait until they see signs of political stability first," he said.

The market was braced for the result later on Wednesday of the presidential race, which had been narrowed when President B.J. Habibie officially withdrew his bid for another term after losing a confidence vote in the People's Consultative Assembly (MPR), which appoints the president.

Front-runner Megawati Soekarnoputri, who enjoyed popular support, was standing against Moslem leader Abdurrahman Wahid, after newcomer Yusril Ihza Mahendra withdrew in Wahid's favor.

Abdurrahman, popularly called Gus Dur, won the presidential post.

The rupiah surged and briefly broke through the key 7,000 per dollar level after Habibie's withdrawal amid euphoria over the election, dealers said.

Central bank governor Syahril Sabirin was upbeat, saying the rupiah would strengthen further to the 6,000-7,000 range.

But the rupiah's strong gains were seen fragile due to uncertainties and questions over how the new government would handle mounting economic and political problems.

The new president will immediately face economic challenges that include rising poverty and unemployment, volatile currency, heavy corporate debt, corruption and racial conflicts.

The rupiah was around 7,200 to the dollar in the afternoon down about 66 percent since July 1997 when the currency meltdown began.

The plunge has exacerbated the country's debt, estimated at around $160 billion. Of the total, $74 billion is private debt.

"This result (of the presidential election) is just a start and not an end. There are just lots of uncertainties ahead. It remains to be seen what sort of policy measures will be taken up by Megawati...if she wins," said Nizam Idris, an economist at I.D.E.A.

"I would reckon the owner of the money will prefer to be on the sidelines to see if peace and economic stability can be restored in the crisis-driven Indonesia after the vote before sending money back," he said.