Jihad calls send markets another negative signal

JAKARTA (JP): A new wave of negative sentiment could hit the financial market this week as jihad calls to defend President Abdurrahman "Gus Dur" Wahid intensifies.

Analysts say investors are concerned that Gus Dur's supporters will enter the capital and clash with his opponents.

This scenario will confirm investors' fear of political tensions seeping to the grassroots level, and crippling the country's fragile economy, the analysts said over the weekend.

"The market is watching carefully NU's (Nahdlatul Ulama) stance on this issue," said stock analyst Jasso Winarto of PT Sigma Research.

Tens of thousands of people, believed to be members of NU, which is the country's largest Muslim organization that was chaired by Gus Dur for 15 years, have registered to join a jihad (a holy war)against the President's political enemies.

Gus Dur's bitter relations with legislators have taken a turn for the worse as the latter seeks to unseat the President through an impeachment process.

Although NU executives have called on their followers to abandon the jihad calls, they fell short of officially banning such activities.

Last week, National Awakening Party (PKB), a party cofounded by Gus Dur, registered over 20,000 people willing to die for Gus Dur. The party said it would continue to accommodate Gus Dur's fanatic supporters until NU said otherwise.

Jasso said investors were not confident that Gus Dur would prevent his supporters from storming into Jakarta, considering his so far halfhearted effort to stop them.

Jasso said he thought NU's official position on the jihad calls would be clear after the completion of its executives' meeting last Sunday.

However, he added, NU was still silent about bughot, an Islamic term for rebellion under which killing of political enemies was justified.

"If NU's bughot includes the legislators who are exercising their democratic rights against the President, the market will dispose of shares for sure," he said.

"The market will see this (bughot) as an act of terrorism against democracy," he added.

Jasso said fears of Gus Dur's supporters, who were prepared to fight to death, had even eclipsed positive signals brought by the arrival of the International Monetary Fund's (IMF) review team in Jakarta.

The team's review over the current reforms' progress is vital for the release of a US$400 million tranche, which has been withheld since last December due to Indonesia's slow reform pace.

Indonesia needs the IMF's loan to help it cope with a larger than expected state budget deficit, triggered by the rupiah's sharp fall against the U.S dollar.

But Jasso said the market was not expecting the IMF to disburse the tranche any time soon.

"Disbursement of the tranche also hinges on the outcome of the amendment of the central bank law for which we don't even have a clear schedule," he explained.

Stock analyst Martin Pangabean at Bank Mandiri estimated trading to end flat or lower this week.

"At present the mood here is still dominated by the U.S dollar's movements. Market sentiments tend to be more negative than flat," he said.

The weakening rupiah has been dragging down the stock market as investors unload shares of companies vulnerable to foreign exchange losses.

According Martin, political pressure from talks of jihad by Gus Dur's supporters can also weigh on the index.

Trading last week, which was cut short by a public holiday on Friday, brought the index only slightly higher to 365.98 from 365.24 in the previous week.

A currency analyst at a local securities firm, Farial Anwar, said the rupiah was up for more political pressure, ahead of the possible issuance of the House of Representatives' second memorandum against President Abdurrahman.

The rupiah gained ground last week when it ended, on Thursday, at 10,580 to the greenback, compared to the 10,875 in the previous week.

"Last week we've seen political tension somewhat relaxing, but I don't think it will last long with the second memorandum on its way, and the calls for jihad growing," he said.

Talks abound that legislators will issue a second memorandum against the President this month, after Gus Dur's disappointing response to the first memorandum of censure issued on February 1.

The censure followed the House's investigation into two financial scandals which implicated the President.

Gus Dur has so far stood his ground by proclaiming his innocence in both scandals.

Farial said the market was bracing for more political maneuvers in the two weeks ahead of the possible issuance of a second memorandum.

"Anything can happen in the two weeks, politics during that period can be very volatile," he said.

But he said chances were slim that the rupiah will fall below the 11,000 level, unless Gus Dur's supporters entered the capital and clashed with his opponents.

He predicted the rupiah to trade between 10,500 and 10,800 against the greenback.

Farial warned that Bank Indonesia's current instruments were losing its impact in a market infested with speculators.

According to him, Bank Indonesia's limited intervention ability is no longer effective to fence off speculative attacks on the local unit. (bkm)