MPR session to determine rupiah's fate

JAKARTA (JP): Bank Indonesia Governor Sjahril Sabirin said on Monday that the beleaguered rupiah should strengthen against the U.S. dollar if the Special Session of the People's Consultative Assembly (MPR) proceeds peacefully.

He said the rupiah's recent volatility against the American dollar was primarily caused by rising market apprehension over the political environment at home ahead of and during the Special Session this week.

"If worries over the political situation are proven baseless, I'm optimistic that the rupiah will strengthen again," he told journalists here.

Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita added that the rupiah should improve against the dollar following the disbursement of bailout money by the International Monetary Fund (IMF).

"I hope the loan disbursement will strengthen the rupiah against the dollar and improve market confidence in the currency," he said.

The IMF approved last weekend a US$960 million loan payment to crisis-hit Indonesia as part of its total $42 billion-plus international package.

The government has said it would use its dollar funds to buy rupiah in the market and thus prop the currency up. The central bank has regularly intervened in the market through the state banks.

Dealers said the decision by the IMF to disburse loans amid the heightening political tension at home helped the rupiah to remain steady on Monday, one day before the MPR started their meeting.

They said the rupiah ended Jakarta trading at 8,450 on Monday, unchanged from Friday's close.

The steadiness of the rupiah was also helped by easing political pressure on the currency as students staged a peaceful protest in the capital on Monday, allaying fears of violence in the lead-up to the MPR session.

Investors, however, remained concerned that during the MPR session the country could witness a repeat of the social and political trouble that pushed Soeharto out of office in May.

A dealer with a local private bank said: "The atmosphere in the market was again nervous today. This situation, I think, will prevail until the MPR session ends."

He said some foreign operators surprisingly were still unloading their dollars on Monday, showing their confidence that the MPR session would proceed peacefully.

Dealers predicted that during the MPR session this week, the rupiah would be traded at between 8,500 and 9,000.

Despite the mounting political tension, share prices on the Jakarta Stock Exchange (JSX) climbed 2.9 percent on Monday, with the JSX Composite Index rising 10.41 points to close at 364.39.

Trading turnover totaled 408.91 million shares valued at Rp 694.30 billion changing hands.

Gainers led losers by 43 to 37, with 83 stocks unchanged.

Stock brokers and analysts attributed the increase to the government-sponsored buying program in the morning on certain blue chip stocks.

Vonny Juwono, an institutional sales dealer with Trimegah Securindolestari, said bullish sentiment in the morning was capped by profit taking in the afternoon session as antigovernment demonstrations heightened in the capital.

Johanes Salim, an analyst with Mashill Jaya Securities, said the increase in stock prices was surprising given the country's political apprehension prior to the MPR session.

"Foreign investors have considered investing in our market too risky given the country's political uncertainty," he said.

"I suspect the government was behind the rise of stock prices today." (prb/rei/aly)