Political woes continue to plague rupiah

JAKARTA (JP): The rupiah is likely to continue to stay at the Rp 10,000 level against the U.S. dollar this week due to the lack of fresh incentives that could lift the market sentiment, analysts have forecast.

Currency analysts and dealers share the same view that the growing concerns over the country's political and economic woes would continue to undermine the Indonesian currency.

Farial Anwar, a currency analyst at a local securities company said that with the current political instability, it would be difficult for the rupiah to return to its Rp 9,000 level.

"It's very difficult now to predict the rupiah's movement," he told The Jakarta Post on Saturday.

But he was optimistic that although the situation remained unfavorable, the rupiah would continue to maintain last week's position at a range of between Rp 10,300 and Rp 10,500 against the American greenback.

The joint intervention scheme developed by Bank Indonesia and the government will prevent the currency from breaching the Rp 11,000 level again.

On Monday, the rupiah briefly touched 11,500 after a senior Bank Indonesia official remarked that the central bank lacked in foreign exchange capital to effectively intervene in the market.

Bank Indonesia responded by selling dollars, and upping the rate of its overnight promissory notes by 50 basis points to push back the rupiah to 10,000.

Upon the government's request, state firms joined the fray to save the rupiah by releasing their dollar reserves.

However, Farial said that last week's concerted efforts by Bank Indonesia and the government failed to bring back the rupiah to below the 10,000 level.

"Whenever the dollar got to the 9,000 level, corporations immediately stepped in to buy," he said.

According to him, the market already knows that Bank Indonesia's foreign exchange reserves is at a critical level.

The central bank, he said, was now the main dollar supplier, coming largely from the exports of crude oil and loans from international institutions.

Yet dollar demand for serving foreign debts and importing raw material alone might reach around US$50 billion this year, he said.

"And that doesn't include dollars for speculation," he added.

With gross foreign exchange reserves of only $29 billion, he said, Bank Indonesia's intervention capacity was highly questionable.

Adding pressure to the meager foreign exchange reserves, is the uncertainty of a $400 million loan package from the International Monetary Fund (IMF).

"The market is not hoping for the IMF's dollars ... but the IMF has become a benchmark for gaining support from other foreign donors," Farial went on saying.

The IMF has delayed its loan package since last December after Indonesia lagged in implementing key economic reforms targets.

Farial said that as other foreign donors had linked their loans to Indonesia complying to the IMF's reforms target, the inflow of the fresh loans was uncertain.

He also suspected that the IMF's reluctance to disburse the loan had more to do with the agency's concerns over the government's immediate future rather than with achieving any reforms targets.

"It's not safe to channel the loans now if the public starts having doubts over the current government's legitimacy," he explained.

The IMF would never admit tying its loans with politics, he said, but the Fund can't risk handing out $400 million to a government about to fall.

"Diplomatically it's unwise to say that your government is not credible anymore, so they (IMF) just keep picking on the LoI (Letter of Intent)," he said in reference to the LoI, which outlines the reforms targets.

When asked whether the market was trading on that worry, he answered: "Look at the facts, watch the rupiah getting weaker."

The rupiah did lose ground last week, closing Friday on 10,325 against the greenback from its previous week's closing at 10,090.

Meanwhile, economist Dradjad Wibowo remained upbeat on Indonesia's relation with the IMF.

"The Fund should be committed to channel its loans no matter who the president is," he said.

Yet he noted that the rupiah breached the 10,000 level, after a statement by a senior government official that an IMF review team was due to come that week, failed to materialized.

Dradjad said that the rupiah's recovery now partly hinges on certainty over the arrival of the IMF's review team; unless, he added, the government can dispel the political fog over this country, which was unlikely in the near term.

President Abdurrahman Wahid's grip on power was marked last week by the dismissal of a minister from the opposition party.

The embattled President fired Minister of Forestry Nurmahmudi Ismail, whose party is a part of Abdurrahman's staunchest political foe, the Axis force.

The weak rupiah took its toll on the stock market, with the Jakarta Stock Exchange (JSX) composite index dropping to below 400, which many believed had been the market's resistance level.

Head of research at PT Ciptadana Securities, Eddy Widjoyo said fears of companies suffering from more foreign exchange losses triggered across the board selling.

Massive selling landed the JSX index at its lowest level in two years, ending the week at 380.51 from its opening at 414.10.

"Those with no positions yet, maintain a wait-and-see stance, while those with positions were cutting their losses," Eddy said.

For this week, he estimated the rupiah's woes to still drag down the JSX composite index and leave it hovering at 375. (bkm)