Politics eclipses IMF arrival in rupiah trading

Politics eclipses IMF arrival in rupiah trading

JAKARTA (JP): The financial market has largely ignored the
arrival of the International Monetary Fund (IMF) in Jakarta, as
the rupiah remains under the spell of political uncertainties in
the lead up to the People's Consultative Assembly (MPR) special
session in August, analysts said over the weekend.

Currency analyst Farial Anwar said he saw little response from
market players after the IMF special mission arrived in Jakarta.

"The market is getting tired of Indonesia's on-off
relationship with the IMF," he told The Jakarta Post.

According to him, market players do not expect much from the
government's efforts to work out a deal with the IMF.

An IMF special mission arrived in the capital Thursday last
week, led by its Asia Pacific deputy director Anoop Singh.

The Indonesian government hopes that their presence here will
lead to the signing of a new letter of intent (LoI) and unlock
the disbursement of a long-delayed US$400 million loan tranche.

It has been over six months since the IMF suspended its loan
installments, the result of Indonesia's poor record in meeting
economic reform targets set out in previous LoIs.

Farial also said the market was discouraged by the IMF's
continued refusal to release its loans.

As the IMF sets the benchmark for other international
creditors in dealing with Indonesia, he said, its stance has
added to the country's economic woes.

He said that, with political concerns persisting, chances were
slim the IMF would agree to disbursing the $400 million before
the Assembly's special session next month.

The future of the nation's leadership has been thrown into
question. On Aug. 1, the Assembly will convene to demand
President Aburrahman Wahid's accountability following his censure
by the House of Representatives (DPR) in relation to two
financial scandals and his erratic leadership style.

Rejection of the President's accountability, which Abdurrahman
insists the MPR has no right to demand, could lead to his
impeachment.

President Abdurrahman was elected in October 1999, amid high
expectations that the country's multidimensional crisis was
nearing its end.

Soon after his appointment, political infighting and
maneuvering, much of which the President had provoked, suffocated
the nation's chances of economic recovery.

"The market wants him out. If he stays in power the rupiah
won't respond well," Farial said.

According to him, there is growing confidence that the
Assembly's special session will end with a peaceful transfer of
power.

"What worries the market is Gus Dur's counterattacks," he
said, referring to the President by his nickname.

Concerns have escalated that the President could call on
fanatical supporters from his political heartland in East Java to
block impeachment proceedings.

Political observers have warned that if Gus Dur's strongest
contender, Vice President Megawati Soekarnoputri, were to take
over the presidency, she would face a difficult task in
reconciling the discord between Gus Dur's supporters and her own.

"Market players won't take positions now, they would rather
continue their wait and see strategies," Farial went on.

Players have bound the rupiah within a trading band of between
11,300 and 11,500 per U.S. dollar over the past few weeks.

Optimism regarding the country's political developments have
lent some relief to the rupiah, ending last week's trading at
11,340, compared to the previous week's closing at 11,410.

A dealer at a foreign bank said the rupiah was glued to the
political outlook from the impending Assembly special session.

"Trading will remain tight, but volatility is likely to set in
about one or two weeks from now," he said.

He predicted that, shortly before the special session,
bickering between Gus Dur and his opponents would intensify.

Though, if all runs smoothly in the days before the special
session, he added, profit taking may send the dollar down.

"I am already seeing people starting to cut their long dollar
position," he said.

What kept them from unwinding their dollars now were concerns
over Gus Dur's supporters, he added.

He said that the President's threats of declaring a state of
emergency, dissolving the House of Representatives and holding a
general election had failed to impress the market.

Pressure from the global currency market may also deter
players from seeking the rupiah, he continued.

Last week, dollar bulls had sent the yen to a three-month low
of 125.95 to the dollar and the greenback rose to its eight-month
high of 0.835 to the euro.

The dealer estimated the rupiah to remain within 11,300 to
11,400 per dollar. But the local unit could still rise to meet
resistance at 11,250 when importers deemed the dollar cheap
enough to enter.

On the stock market, profit-taking finally capped the upward
trend the market had displayed last month.

The Jakarta Stock Exchange (JSX) Composite Index lost ground
in trading last week as it closed at 432.87 compared to 437.62 in
the previous week.

Some analysts have suspected that the previous gains had been
manipulated through market interference. The results of a JSX
preliminary investigation into the what it called "unusual gains"
have yet to be announced.(bkm)