Market nervous as President rejects power sharing

JAKARTA (JP): President Abdurrahman Wahid's rejection of increased power sharing with his deputy Megawati Soekarnoputri, has unnerved the financial market and could set the rupiah for more losses this week, analysts said over the weekend.

President Abdurrahman's unexpected statement last Friday propped the dollar on higher ground, and capped last week's rupiah attempt to recover, forex dealers said.

Adding to the political tension, the President flatly refused to respond to the House of Representatives' second censure against him.

"The President looks stubborn, and the market has lost its orientation over politics," said Khalil Rowter, head of fixed income research at Danareksa Sekuritas.

He warned of the rupiah's renewed weakness in the weeks before May 30, which is the deadline for the President to respond to the House's second memorandum.

Politics will increase in volatility, luring in speculators who can hurt the rupiah like they did last month, he said.

Khalil was referring to the rupiah's sharp fall last month, over fears of mass violence as a result of legislators move to censure the President a second time on April 30.

"It's like a cycle, ahead of such events, the rupiah falls on political uncertainties, then recovers a bit as the market regains some assurance," he explained.

President Abdurrahman's offhand statement tipped the rupiah to end last week at 11,280 to the dollar, lower from 10,950 the week before.

For this week, the absence of political progress could peg the rupiah trading at between 11,000 to 12,000, Khalil predicted.

Hopes that President Abdurrahman and his political opponents might reach a compromise, faded as the President last Friday made it clear he would reject a power-sharing scheme with Megawati.

The power-sharing scheme had been one of the most plausible alternatives for the President to end legislators efforts to impeach him.

Many expect Megawati, as chairman of the winning party in the 1999 general elections, and daughter of the charismatic president Sukarno, to take over the country's leadership.

President Abdurrahman however said Megawati was "happy" with her present role, adding he had already delegated some of his power.

She assumed more authority after legislators forced the President last year into a somewhat unclear power-sharing deal.

Little has changed since the deal was struck, raising suspicions that Abdurrahman Wahid did it to outsmart legislators.

"The market hopes Megawati will be more assertive and take steps such as meeting political parties' leaders," Khalil continued.

He also said the market would not likely welcome another power-sharing deal, given last year's experience.

"They (the market) want something concrete, it could be Gus Dur resigning and Megawati taking over, or a new general election," he said, referring to the President by his more popular nickname.

Khalil said the market was left without any fresh lead to trade on, neither on the political nor economic front.

"The government looks like they're stuck with the state budget revision," he said.

Revising the state budget was a demand of the International Monetary Fund (IMF), which is holding back a US$400 million loan tranche since last year.

The IMF provides the loans to help the government cover its state budget deficit.

However, top IMF officials had also emphasized that no lending was possible without some degree of political stability.

Khalil said that Indonesia was unlikely to receive a fresh dollar supply other than from the IMF, as most foreign investors remained sidelined until the IMF reenters Indonesia.

Separately, stock analyst Adrian Rusmana at BNI Securities said a weaker rupiah could drag down the stock market again.

"The stock market is likely to extend its drop," he said.

Adrian also predicted that continued profit taking, and negative sentiment in the regional market would weigh heavy on the Jakarta Stock Exchange (JSX) Composite Index.

The government's plans to raise fuel prices, telephone tariffs and possibly tax collection, further clouded market prospects, he said.

A stock dealer with a local securities firm concurred, expecting the market to drop rather than recover.

He predicted the Jakarta Stock Exchange (JSX) composite index to move between 350 to 380, with a tendency toward the lower end.

Last week profit taking sent the JSX composite index down to 370.35, against 375.56 during the previous week's trading.

Commenting on a recent deal by PT Indofood Sukses Makmur to purchase PT Golden Agri Resources, the dealer said it failed to arouse investors' interest.

"The deal could generate synergy, but in the short term, investors doubt whether Indofood can afford the transaction," he said.

Last week, Indofood announced plans to purchase up to 55 percent in Golden Agri for a total of $173 million.

Following news of the acquisition, Indofood's stock ended down 3.12 percent, or Rp 25, to Rp 725.

The dealer said that investors were put off by the high price Indofood had agreed to pay for Golden Agri's shares.

Also, the deal might run into problems on fears it could violate antimonopoly laws, he added.

Purchasing Golden Agri would turn Indofood into the country's largest Crude Palm Oil (CP) producer.

Already dominating the local instant noodle market, Indofood might also lead the local cooking oil market through Golden Agri.

The dealer called the Golden Agri's purchase strategic, which, however, lacked in short term incentives.

As speculators ran most of the market now, he said, deals that offered long term prospective only were hard to sell.

"The deal looks good, but it's the timing that isn't right," he said. (bkm)