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)