Political doubt remains problem in capital mart

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)