Govt-IMF relation to set tone for rupiah: Analysts
By: Berni K. Moestafa
JAKARTA (JP): With the eagerly awaited Cabinet in place, the new government's ability to push ahead talks with the International Monetary Fund (IMF) will set the tone for the rupiah's movements in the coming weeks, according to analysts.
David Chang, president of PT Vickers Ballas Tamara, said the market focus was on whether the new economics team could live up to its reputation.
"They (the market) will look at the Cabinet's performance," he told The Jakarta Post on the weekend.
President Megawati Soekarnoputri managed to win the hearts of the currency market when she unveiled her long-awaited Cabinet last Thursday.
In keeping her promise to prioritize economic recovery, Megawati slanted her Cabinet towards professionalism rather than political interests.
Cheering her choice, the market traded the rupiah to its ten- month high, at 9,050 against the U.S dollar, before corporate demand ended the unit lower at 9,125.
On Friday, the rupiah closed the week much higher at 9,110, compared with 9,500 the week before.
The local unit has been gaining since Megawati rose to power in late July, ending the 21-month-long erratic leadership of Abdurrahman Wahid.
Although pegged at 9,800 in the revised 2001 state budget, the rupiah has been hovering at around 10,000 to 11,000 for the better half of this year.
Chang said that for the local unit to maintain its strength, the new government had to put into action promises of restarting Indonesia's stalled economic recovery.
The first test to come, he said, was to convince the IMF to resume its long-delayed loan program to Indonesia.
With an IMF team visit slated for later this month, the fund's first impression of the new economics team would be closely watched by the market, he added.
A positive nod from the visiting team should signal the fund's readiness to resume its lending to the new government soon.
The IMF suspended a US$400 million loan tranche, over Indonesia's failure to meet several economic reform targets.
Economists heaped much of the blame on the shoulders of former coordinating minister for the economy Rizal Ramli.
Despite being the front man in talks with the IMF, Rizal made it no secret he was displeased by what he charged the fund's bossy intervention in Indonesia's economy.
Earlier, currency analyst Farial Anwar said the IMF was the most immediate concern facing the new government.
A benchmark for international creditors in dealing with Indonesia, the IMF's resumption of its loan program would help maintain the market's upbeat mood in the rupiah, he said.
Responding to economics ministers' first comments on Indonesia's economy, Chang said their statements had been realistic thus far.
Coordinating Minister for the Economy Dorodjatun Kuntjoro- Jakti said his priority was to create more job opportunities.
Finance Minister Boediono highlighted the importance of drafting the 2002 state budget within the short time left.
Minister of Industry and Trade Rini M.S. Soewandi set her eyes on raising export revenues through assisting the sales of competitive products.
"I think they are realistic expectations, I don't think they (ministers) have cited anything that is impossible to achieve," Chang said.
In the longer term, he continued, the new economics team would have to expedite asset sales and privatization.
"When political stability improves, businessmen will be more willing to invest," he explained.
For now, Chang said, he saw no immediate political risk that could destabilize Megawati's fledgling government.
"In the short term, we will see the 9,000 level broken through ... on condition that the government makes no mistakes," he predicted.
"The kinds of mistakes," he added, "that could provoke political instability, or hurt Indonesia's relations with the IMF."
Some analysts said Indonesia's economic fundamentals should enable the rupiah to survive at around the 8,000 level.
This estimate has already factored-in corporate demand for the dollar, but political instability may renew speculation against the rupiah.
On the stock market, investors reacted differently to the announcement of the Cabinet, with the index taking a steep fall to 430.69, as against 442.53 the day before.
A dealer at a local securities firm said investors had bought on rumors ahead of the Cabinet announcement.
Once news of the Cabinet hit the market, investors took profits, pushing the index down, he explained.
However, he said the index was poised for a gradual rise in the coming days, as confidence ran high that the new government was going to make a good start.
In last week's trading, the Jakarta Stock Exchange (JSX) Composite Index ended almost unchanged at 435.67, compared with 435.15 the week before.
"For this week, it's possible for the index to reach the 440 level, but it will be a slow rise," he said.
The government's seeking more debt rescheduling through the Paris Club nations of creditors would help the rupiah, and in turn, the stock market, he explained.
Without much exposure to foreign investors, he said, the index could rise mainly on the back of a stronger rupiah.
He said a firmer rupiah would help companies with foreign debts, thus driving the index further up.
Unlike its regional peers, the JSX index had been less hurt by signs of a prolonged stagnation in the United States' economy.
Stock markets across the globe took a beating from concern that exports to the world's largest economy were still far from recovering. (bkm)