Local stock market gives cool response to new Cabinet lineup

JAKARTA (JP): Financial markets gave a cool response to the announcement of the new cabinet lineup on Tuesday, with stock prices losing ground and the rupiah ending the day almost unchanged in featureless trading.

Securities analysts said that stock prices, which rose in the morning session, lost strength later in the afternoon following the announcement of President Abdurrahman Wahid's new cabinet.

The analysts said that the economic team in the cabinet did not really meet market expectations and investors even questioned their capability in lifting the country out of the crisis.

"This has raised some concerns of market players," one analyst said.

Except the newly appointed Chief Economic Minister Kwik Kian Gie, other members of the economic team such as Minister of Finance Bambang Sudibyo are hardly known by the public.

The Jakarta Stock Exchange Composite Index closed down 2.8 points, or 0.5 percent by end of the day at 594.253, with 705 million stocks changing hands at Rp 1.1 trillion .

The rupiah increased slightly to Rp 6,785 as compared to Rp 6,920 late on Monday.

Budi Hidmat, an economist at Bahana Securities, said that the response from the market was negative because many investors underestimated the capability of the new cabinet's economic team in coping with the country's crisis.

He suspected that the composition of the cabinet lineup was made only as a political compromise rather than due to the track records of the team members.

Abdurrahman won the presidential race last week thanks to supports from Golkar and several Islamic-based parties.

Analysts initially feared that the President would have to include representatives of the parties in the new cabinet to repay his political debts, ignoring their technical capabilities in managing their ministerial posts.

David Chang, head of the research department of Trimegah Securities said that the fall in share prices did not genuinely reflect the formation of the new economic team.

He said that most investors were still adopting a wait-and-see attitude until the team announced their priorities in dealing with the country's bank restructuring program and in maintaining good relations with the International Monetary Fund.

Chang said that the long-term prospects of the rupiah and share prices remained bullish despite the initial negative response from the market to the new economic team.

The JSX Composite Index, according to Chang, would further increase to reach 725 points while the rupiah would strengthen to Rp 6,500 against the U.S. dollar by the year end.

Foreign exchange dealers said the rupiah underwent little movement because many institutional investors bought the greenback to cover short positions.

Foreign investors

Foreign analysts are, however, more positive. They welcomed Indonesia's new and reform minded cabinet on Tuesday as a clean break with the country's corrupt past but worried its lack of experience may show once the election euphoria blows over.

Adburrahman's new government is a cross-section of the political spectrum, with fewer generals than at any time in the country's history. Yet even though Abdurrahman is fast proving a wily politician, Indonesia still faces huge economic, law and order, and corruption problems and the tasks facing the six-day old president's new team are daunting.

"The essential problem was that Abdurrahman could have gone for experienced people, but then they would have been linked to former President Soeharto. Or he could go for a clean, new and inexperienced team. He chose the latter," said economist Nick Bibby at West LB Asian told Reuters

Nevertheless, chief economic minister Kwik, Vice-President Megawati Soekarnoputri's senior economic advisor and an ethnic Chinese, is seen as a safe pair of hands, as well as an important signal to the country's minorities.

Finance Minister Bambang is a largely unknown quantity. But he is expected to play second fiddle to Kwik and with the country beholden to the International Monetary Funds for desperately needed loans, analysts expect largely sound economic policies.

More striking, and potentially more decisive in that political stability is seen as a precondition for implementing reforms, are appointments such as leading Golkar party reformist Marzuki Darusman as attorney general.

"That's very important and a very smart move in terms of political stability," an analyst at a leading U.S. house said. (rei/03/hen)