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)