Regional market focuses on Indonesia
Regional market focuses on Indonesia
SINGAPORE (AFP): Indonesia will be under the regional market spotlight this week as Jakarta overhauls its banks and grapples with political uncertainty ahead of the June polls, dealers and analysts said.
Most regional currencies ended firmer last week, buttressed by the yen, which surged in New York late Friday to 118.70 per dollar, from 122 levels a week before, despite Tokyo's release of dismal economic figures for 1998.
The Bank of Japan (BoJ) decided Friday to leave monetary policy intact, surprising players who had sold down the yen on expectations of an easing, although the BoJ vowed to hold down short-term interest rates.
Dealers attributed the yen's pre-weekend spike to real and perceived repatriation of funds by Japanese companies before the 1998 fiscal year ends this month, on top of foreign money pouring into Tokyo stocks.
"There won't be much (news) from Tokyo because the BoJ meeting is finished," a chief currency dealer in Singapore said of the week ahead. "The market will have nothing to trade on."
"The most interesting thing is whether Indonesia will follow through on the closing of the banks," he said.
Political uncertainty persists in the run-up to Indonesia's elections amid rising sectarian violence in the countryside, but the dealer said violence had already been "factored in" as long as Jakarta stays calm.
Indonesian Finance Minister Bambang Subianto announced Saturday that the government will close 38 ailing banks and take over seven others.
The Indonesian rupiah closed the week lower at 9,150 from 8,900 the week before amid strong dollar-buying ahead of the announcement. It hit a low of 9,600 before profit-taking set in.
Jakarta was supposed to launch the shake-up on February 27 but announced at the last minute that it was delaying the decision by two weeks.
Indonesian banks have been left reeling by the 21-month-old Asian financial crisis, which prompted Jakarta to go to the IMF for a $46 billion financial bailout package in December 1997.
Daniel Lian, head of Asian markets research at ANZ Investment Bank in Singapore, said markets were "impatiently waiting" for Indonesia's decision on the bank recapitalization plan.
"A perception of non-bias towards politically connected businessmen would give one positive signal to the market, in an environment that is filled with pessimism," he said.
Another 73 Indonesia banks in the "A category" met the capital adequacy ratio (CAR) requirement to stay open.
Seven state banks and four private banks in government control since last year will be recapitalized because of their strategic roles. Together they hold an estimated 69 percent of the market share in Indonesia.
Four of the state banks -- Bank Ekspor Impor, Bank Dagang Negara, Bank Bumi Daya and Bank Pembangunan Indonesia -- will be merged by mid-1999.
Most regional currencies ended the week firmer. The Philippine peso rose to 38.97 pesos to the dollar from 39.125 the week before, the South Korean won to 1,233 from 1,243, the Taiwan dollar to 33.112 from 33.147, and the Thai baht to 37.35 from 37.60.
Markets in Thailand cheered the passage of bankruptcy law which was seen as vital in rehabilitating the economy where the Asian crisis exploded in July 1997.
Economists in Singapore meanwhile concurred that the local dollar, relatively strong compared to its neighbors' currencies, was headed for further weakness toward the end of the year to 1.80 to 1.90 against the U.S. dollar. It closed last Friday at 1.7335, down from 1.7295 the week before.