Market more confident as politics heats up

JAKARTA (JP): As political developments unfold swiftly, market players are becoming more confident of a strong rupiah and stock market, analysts said on Friday.

President of PT Vickers Ballas Tamara, David Chang said the market was upbeat that the country's drawn-out political impasse was coming to an end.

"The market is expecting Gus Dur to resign," Chang told The Jakarta Post, referring to President Abdurrahman Wahid by his popular nickname.

Over the past few days, the rupiah's and stock market's upward trend had been fueled by a positive political outlook, he said.

Last Wednesday, hints of a compromise between the President and his political foes helped unlock the rupiah from its four-day long exchange rate of 11,340 against the U.S dollar.

During Friday trading the rupiah made a hefty surge to 11,148 from 11,285 the day before, as more players unwound their long- dollar positions.

Chang said that for next week, the rupiah would continue its rally, with a possibility of dropping through the 11,000 level.

The People's Consultative Assembly's special session would further instill confidence in the local unit, he added.

Last night, the Assembly decided to move forward the special session from its original schedule of Aug. 1, in response to the induction of a new National Police chief by the President.

The move is seen as an attempt to shore up police support to dissolve the House of Representatives under a state of emergency.

President Abdurrahman has made numerous threats to declare a state of emergency to prevent the Assembly's special session from taking place, as its members are mainly legislators.

The Assembly's special session is almost certain to impeach the President over his alleged incompetence as leader.

President Abdurrahman recently backed down on his threats, due to, what many believe, a lack of support from the Military and the police.

With the decision for a snap special session now made, any remaining faith in the President will hinge on Monday's reception of his accountability speech.

"The political carrier of Gus Dur is nearing its end," Chang said.

According to him, even without the special session, the market would remain upbeat as it was only a matter of time before Gus Dur would be impeached.

Stock analyst Fajar Hidayat concurred with Chang, saying the stock market was poised to strengthen due to the latest political developments.

But he added that political developments had been moving too fast for the market to react to every event.

Fajar said that the market had refined its expectation of the timing of President Abdurrahman's fall.

"If the special session falls on Saturday, Gus Dur will resign sooner than otherwise," he said.

He added the market was little concerned that the President's impeachment could trigger violence from his supporters.

Stock analyst Feri Latuhihin at PT Danareksa Research said that the market would gain also on corporate news from blue chips.

Feri predicted the stock index could breach the 500 level in trading next week.

This week, the index ended at 460.90, up from 446.28 at the previous week's close.

Separately, Bank Indonesia Governor Sjahril Sabirin said the central bank would temporarily stop raising its interest rates, citing the reduction of pressure on the local currency.

He said the rupiah's strengthening in the last few days had eased pressures for another interest rate hike.

"We take the view that the current interest rate is high enough," Sjahril said, adding that the bank would closely watch the market on a daily basis.

Bank Indonesia's one-month certificate (SBI) interest rate stood at 17.09 percent, following last Wednesday's weekly auction.

Sjahril added that because of the stronger rupiah, he also saw no immediate need to intervene in the money market.

The central bank had said earlier that interest rates of about 17 percent were still acceptable to the banking sector, which had to raise its rates to compete with SBI rates.

A further hike would risk causing negative spread among banks that would be unable to cover their own high lending rates with the earnings they would make from government fixed-rate bonds. (bkm)