Market responds positively to new deal
Market responds positively to new deal
JAKARTA (JP): The rupiah closed slightly higher against the
U.S. dollar yesterday due to a positive market response to the
new economic reform accord between the government and the
International Monetary Fund (IMF), currency dealers said.
They said the spot rupiah, which opened at 7,800/7,850 in
Jakarta market, rose higher to touch the 7,500 level before
closing at 7,550/7,625 against the American dollar in thin
trading.
"The reform measures in the new deal have restored investor
confidence in the government's commitment to addressing the
economy," a chief dealer with a joint-venture bank said.
The government signed another 117-point program last week
after three weeks of tough negotiations to supplement the 50-
point reform package signed by President Soeharto on Jan. 15.
The revised package includes a tightened monetary policy,
comprehensive programs for a social safety net, a framework for
the solution of corporate foreign debts, the elimination of
monopolies and most subsidies and tougher measures against ailing
banks.
Currency dealers said the rupiah gained ground yesterday over
fears that the central bank would again raise benchmark interest
rates on its promissory notes (SBI) in the near future to prop up
the rupiah.
Dealers said that overnight rupiah deposits currently stood at
45 percent and that one-month rates were about 47 percent.
"I think the rupiah was helped along by the combination of the
new economic reforms and market fears that there will soon be
another wave of interest rate hikes," the dealer said.
He added that the rupiah would continue its upward trend in
the coming weeks provided the government maintained a tight
monetary policy.
"Should the central bank raise its interest rates again
(currently as high as 45 percent), the rupiah could strengthen to
between 6,500 and 7,000 in the coming weeks. Otherwise, the
rupiah might weaken to between 7,500 and 8,000 again," the dealer
said.
Although the rupiah strengthened, trading in the foreign
exchange market remained thin as many investors cautiously
watched for indications of the government's seriousness to
implement the new reforms.
"Investors expect significant improvement only if the reforms
will be fully implemented," the dealer said.
President Soeharto stressed yesterday that the government was
strongly committed to carrying out the revised reform package.
While the rupiah gained ground, stocks in the Jakarta Stock
Exchange (JSX) fell 0.7 percent yesterday.
JSX prices were dragged down by selling pressures on blue chip
stocks, especially state-owned companies like PT Telkom, PT
Tambang Timah, PT Indosat, Aneka Tambang and Bank Negara
Indonesia, stockbrokers said.
They said most investors unloaded their state company stocks
to benefit from high share prices before the government made
further divestments called for by the package.
The latest package calls for the government to further divest
its equity holdings in publicly listed state companies by March
31, 1999 at the latest.
"I think this planned divestment prompted investors to sell
the stocks to benefit from their high prices now," said Eddhy
Widjoyo, an analyst of Mashill Jaya Securities.
Brokers also blamed the decline in stock prices on market
expectations of another interest rate hike by the central bank to
strengthen the rupiah.
"There is market talk that the government will raise interest
rates soon," a broker with a joint brokerage firm said.
The JSX Composite Index closed 0.7 percent down or 3.52 points
lower to 524.06 points yesterday on a total volume of 374.62
million shares worth Rp 449.10 billion (US$59.88 million). (aly)