Investors to sideline due to lack of fresh leads

Investors to sideline due to lack of fresh leads

By Berni K. Moestafa

JAKARTA (JP): The absence of fresh political developments
could push the financial market into lackluster trading this week
with the rupiah moving flat to lower, and the stock market index
likely to break the 400 level, analysts said over the weekend.

They said that lack of incentives on the political front and
uncertainties over the economy, provided little ground to trade
on.

Khalil Rowter, head of fixed income research at state owned PT
Danareksa Sekuritas, said that if conditions prevail, rupiah
trading is likely to be range bound at between Rp 11,200 to Rp
11,500 against the U.S dollar.

"There isn't much going on for the market to trade on ... it's
going to be a quiet market," Khalil told The Jakarta Post.

He said that most market players fixated their position on
Aug. 1, the date when the country's highest body, the People's
Consultative Assembly is set to hold a special session.

The session could spell the end of Abdurrahman Wahid's
administration, after the Assembly elected him as president
following the 1999 general election.

Legislators have pushed for the Assembly's session to demand
President Abdurrahman's accountability over two financial
scandals, and over what they call his erratic leadership.

"With the date (of the Assembly's session) now known, it has
lent some certainty to the political front," Khalil went on.

He said the market was not expecting any surprises from the
embattled President, as he had fewer choices since he reshuffled
his Cabinet two weeks ago.

The reshuffle came unexpectedly, and its news hit the market
shortly after trading closed. The impact, however, was subdued
during last week's trading, partly thanks to a long weekend that
followed the reshuffle's announcement.

The move was aimed at melting the frosty relationship between
the President and his estranged deputy, Vice President Megawati
Soekarnoputri.

Restoring ties with Megawati is seen as vital for President
Abdurrahman to survive the Assembly's upcoming session.

If impeachment occurs, Megawati is almost certain to take over
the top job, which President Abdurrahman took from her during the
Assembly's 1999 vote.

The party she leads, the Indonesian Democratic Party of
Struggle (PDI Perjuangan), won the 1999 general election. Its
members are now pushing for President Abdurrahman's removal.

The daughter of Indonesia's founding father Sukarno, Megawati
still enjoys wide popularity. Last week's mass celebration of
Sukarno's 100th birthday has helped reinforce her political
status.

To win her back, President Abdurrahman turned to former
military man Agum Gumelar, whom he made Coordinating Minister for
Political, Social and Security Affairs in the latest reshuffle.

But in the first week of work on his mission, little has
changed. Megawati snubbed the first Cabinet meeting last
Thursday, which officials blamed on technical hitches.

Last Friday, the President also assigned Agum and top economic
minister Rizal Ramli to lobby PDI Perjuangan into resisting
impeachment.

Minister of Defense Mahfud M.D. and newly appointed Attorney
General Baharuddin Lopa are in charge of lobbying the Golkar
party and the Axis Force, a coalition of Muslim parties.

"I don't see any breakthroughs yet from the new Cabinet, the
market wants concrete steps not just talks," Khalil continued.

However, he said the rupiah took some reprieve from the fact
that the political bickering has not seeped into the grassroots
level yet.

Sporadic riots did break out, but mainly in the President's
political heartland in East Java, with the latest occurring late
last month in the town of Pasuruan.

"Dealers, assuming sentiment would worsen, had positioned the
rupiah close to 12,000. They were wrong," he said.

Khalil estimated that dealers with long dollar positions then
had unwound the unit to cut losses.

"They (the dealers) couldn't hold their breath for that long,
so they released their dollars, which is why it fell quite steep
last week," he explained.

In last week's trading, the rupiah made a swift surge to end
the week at 11,200 up from the previous week's closing at 11,325.

Dealers said that companies selling the dollar to meet local
tax payments had helped pushed the rupiah upwards.

Khalil, however, warned that the rupiah would remain weak in
the longer term as corporate foreign debt servicing maintained
pressure on the local unit.

"Taking political factors out, and assuming no fresh dollar
supply comes in, I see the rupiah gradually weakening," he said.

He also predicted banks to make large amounts of foreign debts
payments in the third and fourth quarter of this year.

These debts, which he estimated at some $10 billion, were the
result of a three-year debt rescheduling deal Indonesian banks
secured from the 1998 Frankfurt agreement.

In that year, foreign creditors restructured more than $80
billion in debts by Indonesian firms and banks.

"Strong demand for the dollar would continue to exist until
the end of the year," he said.

Meanwhile, stock analyst Iwan Junus at PT Indosuez W.I. Carr
Securities echoed Khalil's forecast of investors sidelining the
market.

He said for the time being the market's movement still rests
on how political developments will unfold.

The Jakarta Stock Exchange (JSX) Composite Index firmed to
398.811 last week, from 396.51 in the week before.

According to him, the market index would remain at around 390
to 400, but added that breaking the 400 would make sense.

"In thin trading like this, it doesn't take much to notch the
index to the 400 level," he said.