Political woes continue to plague rupiah

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)