Morgan Stanley sees rupiah's value at 6,000 by year-end
Morgan Stanley sees rupiah's value at 6,000 by year-end
JAKARTA (JP): Indonesia's newly established legitimate
government will boost the rupiah's value against the U.S. dollar
toward 6,000 by year-end, according to an estimate by the United
States-based investment bank Morgan Stanley Dean Witter (MWD).
"We see scope for the dollar-rupiah to trade toward Rp 6,000
by year-end," the investment bank said in its report.
It said that the currently undervalued rupiah offered ample
room for further appreciation against the dollar.
In its latest "Indonesian Rupiah" report made available on
Thursday to The Jakarta Post MWD said that at the current level
of 6,800 to the U.S. dollar, the rupiah was still grossly
undervalued.
"The rupiah is 25 percent undervalued. This implies that the
dollar-rupiah could in principle fall to the 5,000 to 5,500
range," MWD said.
The report implied that the current rupiah value continued, to
some extent, to be dictated by decisions made during the previous
administration under former president B.J. Habibie, who often had
awkward relations with the international aid institutions.
After two years of economic and political uncertainty, the
People's Consultative Assembly (MPR) democratically elected last
week the country's President and Vice President for the first
time in its history.
"The significance of a legitimate government in Indonesia
should not be underestimated," the report said.
The report added that the composition of the Cabinet formed
this week by newly elected president Abdurrahman Wahid had made
an important step in further establishing his government's
legitimacy.
"(The Cabinet) is free of blatant ethnic, political and
religious biases or alliances," the report said.
The report stated that the positive political developments of
the last nine days played a tremendous part in reducing the
political risk status of the country.
"Essentially, the biggest noneconomic risks are now behind us.
From this point forward, the dollar-rupiah will be determined
more by economic fundamentals than the noneconomic factors."
The report also acknowledged the substantial problems
Indonesia was facing, such as solving the external debt overhang,
completing the domestic bank restructuring program and creating a
conducive environment to attract foreign direct investment.
"However, with the new government in place, the international
creditors would be more inclined to consider debt rescheduling
and write-offs," the report said.
The rupiah closed lower at 6,925 against the greenback on
Thursday, compared to 6,910 the previous day.
Dealers said that the trading volume was meager due to the
lack of fresh leads on the new government's economic direction.
"We are closely monitoring what programs the newly formed
Cabinet will implement, and also hoping for the prompt release of
the full report on the Bank Bali case by the House of
Representatives to the public," one dealer said.
The Jakarta Stock Exchange Composite Index ended higher by 1.4
points, or a quarter percent, to 577.93, with the volume of 255
million shares valued at Rp 411 billion.
Dealers said a late buying spree on select blue chips
prevented the index from closing lower on Thursday.
They said investors were cautious during the day over whether
the new Cabinet would prove capable to cope with the country's
crisis-hit economy. (udi)