IMF talks outcome crucial for trading activities

JAKARTA (JP): The nature of this week's trading on the Jakarta Stock Exchange (JSX) will depend much on the outcome of the International Monetary Fund's (IMF) review of Indonesia's economic reform program, securities analysts believe.

Analysts said that if the ongoing talks between the IMF team and the government over the country's reform program produced positive results, the market sentiment's trend would undoubtedly be bullish.

But they added that if the outcome of the talks resulted in a further delay in the disbursement of the US$43 billion rescue fund, the market would react negatively.

Aside from all the IMF-related permutations, most stock analysts and brokers said the main index increased so drastically last week (4.09 percent), it would be impossible to continue the upward trend this week.

IMF officials have been here for two weeks reviewing the implementation of the economic reforms introduced in January in exchange for an IMF-led US$43 billion bailout package.

The results of the review will be used to decide whether Indonesia has qualified for the second $3 billion tranche which was delayed due to allegations that the government was not serious about implementing the IMF-reforms.

The country received the first $3 billion tranche in October last year.

"If IMF agrees to disburse the second tranche this week, foreign investors' confidence in the local market will improve," Mashill Jaya Securities' research director, Tjandra Kartika, said.

If the government and the IMF team reach a deal, it would not only mean that Indonesia would receive fresh funds to help restimulate the battered economy but would also mean that the country's private sector would receive much-needed help to settle their mounting offshore debts.

"The market will, therefore, deserve strong attention from investors," one analyst said.

Last week, IMF officials agreed to Indonesia's proposal to adopt the Mexican model to reduce the US$73.70 billion overseas debt owed by the country's private company's.

The downward trend in interest rates should also be an incentive to buy stocks this week.

"This week we will have many incentives to buy stocks, not only due to the encouraging signals from the IMF's talks but also the downward trend in interest rates," Christina Lime of Harita Securities said.

Analysts say that lowering domestic bank interest rates would also encourage more investors to put more funds into the equity market rather than in banks' time deposits.

State and private banks, which raised deposit rates to as high as 67 percent last Monday, agreed Thursday to lower the rates to reduce costs.

The Indonesian state and private banks agreed to set new rates at a maximum of 47.5 percent for one-month deposits, 31.5 percent for three-month deposits, 21 percent for six-month deposits and 19 percent for one-year deposits.

"Even so, most investors base their investment on market sentiment rather than on fundamentals," Joko Santoso, an analyst with GK GOH Ometraco said.

Most analysts said that the likely positive outcome of the IMF talks, which is expected to be announced this week, would also strengthen the ailing rupiah.

The rupiah, which has lost about 70 percent of its value since the crisis first hit the country in July, reached its lowest level of 17,000 to the U.S. dollar in January.

Last week, the rupiah showed some strength, hovering between 9,500 to 8,500 against the greenback.

The Jakarta Stock Exchange's Composite Index rose 25.367 points to 542.09 last week from 516.72 the previous week.

Daily average turnover rose 59 percent to 826.30 million shares changing hands last week from 594.21 million the previous week.

Daily average value was Rp 915.75 billion (US$107.73 million) last week from Rp 512.40 billion the previous week.

Most blue-chip stocks ended higher last week with state-owned telecommunication PT Telkom rising Rp 200 to Rp 4,250, satellite operator Indosat Rp 850 to Rp 13,600 and Gudang Garam Rp 50 to Rp 11,900.

The stock market would be closed tomorrow to mark the closing of the 1997/1988 fiscal year. (aly)