Political doubt remains problem in capital mart

JAKARTA (JP): High interest rates and political uncertainty will continue to cast a shadow over the capital market in the immediate future, analysts have said.

They said a qualifying comment that last week's debt agreement allowing Indonesian debtors to reschedule their foreign debts and an encouraging signal about the disbursement of the International Monetary Fund's second tranche loan for the country should bring a fresh wind to the local stock market.

But, they said any positive sentiment from the two fundamental factors would be still overshadowed by local political affairs and high interest rates, which still stand at over 50 percent per annum.

Moreover, said head of research of Socgen Crosby Securities Indonesia Goei Siauw Hong, the debt deal, to be effective in August, would not be enough for many local companies.

He said that many local companies were already too weak even to pay the interest on their foreign debts, which has more than tripled in terms of rupiah due to the currency's sharp depreciation against the U.S. dollar since July last year.

"The problem is that most Indonesian borrowers have no dollar- based income sources," another analyst said.

Hong said many local companies had not even serviced the interest payments since January this year due to their ailing operations and the sharp increase in debts.

The debt agreement, which revived the market sentiment for a while in an euphoric response last week, gave Indonesian debt- ridden companies eight years to pay off their liabilities and a three-year grace period in which they need pay only interest.

"Though the deal is good, it just cannot solve the entire problem because the country's overseas debt is so huge that it is almost impossible to repay it," he said.

Dealers said the beleaguered rupiah, which has plunged almost 80 percent in value since July last year, received no respite from the debt agreement because the currency remained stuck below the 11,500 level against the U.S. dollar.

An analyst with Danareksa Sekuritas, Raden Pardede, said that the country's battered financial market was expected to further deteriorate due to deepening poverty, spiraling inflation, rising unemployment and escalating political uncertainty.

"Deepening poverty and food shortages will likely lead people to stage protests, causing another outbreak of mass unrest in the coming months," he said.

Stock analysts and dealers said the likelihood of the release of the IMF loan package to bring Indonesia out of its economic plight in the weeks ahead would not be able to improve the market sentiment.

"Even if the IMF releases its fund, its significance has been undermined because the country is currently struggling with food shortages," Raden said.

Indonesia was initially expected to receive US$1 billion in funding on June 4 but its payment was postponed due to political turmoil.

The IMF has so far disbursed about $4 billion from about $10 billion it pledged in a $43 billion loan package to cope with Indonesia's worst-ever economic crisis.

Stockbrokers and analysts said the country's persistent political uncertainty remain a major problem for foreign fund managers to place their funds in the country's dire market.

They said that most foreign brokerage firms operating in the local exchange continue to place large selling orders on the stocks they held over the past few weeks.

They said that foreign investors continued to discard the stocks especially those linked to former president Soeharto's family and his associates, like Bimantara Citra, toll-road operator Citra Marga Nusaphala Persada, noodle maker Indofood Sukses Makmur and cement maker Indocement Tunggal Perkasa, due to mounting public calls to investigate their wealth.

"This stocks are likely to remain under selling pressure this week," another broker said.

The JSX Composite Index fell 2.56 percent to 409.51 points last week from 420.26 the previous week.

But the average daily turnover rose 25 percent to 304.59 million shares changing hands last week from 243.49 million shares the previous week.

The average daily transaction value also rose 26 percent Rp 332.87 billion ($30.26 million) last week from Rp 263.43 billion the previous week.

A chief dealer with Bali Securities Hendra Sunarto said trading activities in the local bourse would remain sluggish due to the persistent political uncertainty.

He said that a slight increase in stock prices on the local bourse late week was due to the market's euphoric response to the debt accord between the Indonesian debtors and foreign creditors on Thursday.

"The mild rise in stock prices was supported by local speculative buying. It did not reflect the return of foreign investors' confidence,' he said. (aly)