Rumors over TNI reshuffle send another bad sign

Rumors over TNI reshuffle send another bad sign

JAKARTA (JP): Rumors that President Abdurrahman Wahid plans a
reshuffle among top military officials to allow him to disband
the House of Representatives will cloud this week's political
outlook and may extend pressure on the rupiah, analysts said.

They said that if the rumors were true, the rupiah would
buckle under more political tension, and could drag down the
stock market.

Market analyst David Chang at Vickers Ballas Tamara securities
said the mere hint of a military reshuffle to achieve political
objectives, and also plans to dissolve the House, are
unacceptable to the market.

"Disbanding the House is very serious... this will create more
political turmoil ahead," Chang told The Jakarta Post.

He warned the rupiah could drop to 12,000 against the U.S
dollar, if President Abdurrahman tinkers with the military to get
rid of his political opponents.

"The President's replacing military officials is only okay if
it's part of a natural process," he said.

Rumors of an impending military reshuffle began circulating in
the market a few weeks ago. They gained strength on reports that
top military officials had rejected President Abdurrahman's plan
to dissolve the House.

The President denied such plans, and accused the media of
making it up.

Earlier, Newsweek also quoted the President as saying that the
military had turned down his idea of imposing a state of national
emergency.

Speculation then rose that President Abdurrahman had tried to
replace the military chiefs with those who might be more
compliant with his wishes.

But Army Chief of Staff Gen. Endriartono Sutarto warned the
President against the reshuffle. He said the President should
avoid dragging the military into political bickering.

Endriartono's statement last Friday refreshed market concerns
after the embattled President brushed aside a power-sharing deal
with Vice President Megawati Soekarnoputri.

"So far the military has been quite reasonable, it has not
supported any political party," Chang said.

He added the market would react negatively if the military
were to become part of this country's political struggle.

The President is close to facing impeachment, which could be
in August, after legislators censured him twice over two
financial scandals.

An impeachment would almost certainly reward Megawati with the
presidency.

Until now his closest ally, Megawati leads the country's
largest party, which has been supporting the impeachment calls.

However, as prospects of Megawati becoming the president draw
near, she has distanced herself from President Abdurrahman, some
observers have said.

They also note the close relationship between her and the
military.

With few options left, the embattled President has been seen
as taking more risky moves to strike out against his political
foes.

Last month, he amassed thousands of his supporters in Jakarta,
stirring up fears of unrest that pushed the rupiah to 12,000
against the dollar.

However, Chang said that although the military reshuffle would
set a bad tone for this week's trading, the market had not
reacted yet.

"Rumors come and go every week..... this one is not that
strong yet," he said.

Political issues had been dictating most of the rupiah's
movement last week. The local unit ended the week at 11,370
against the greenback, lower than 11,280 the week before.

Ahead, the rupiah faces more negative sentiment on concern
that the planned hike in fuel and power rates might backlash on
the economy.

"In the short term it will have a negative impact, but in the
long run this is good for the economy," he said.

The government proposed to raise fuel prices by 30 percent,
and power rates by 20 percent next month, to reduce spending on
subsidies.

Both energy hikes must be approved by the House.

Stock analyst Roberto Pardede at Mandiri Securities said
political instability stemming from rumors such as the military
reshuffle might limit the market's fragile recovery.

In the lead-up to the deadline on May 30 when the President
must response to the Houses' second censure, politics would
remain dominant, he said.

President Abdurrahman has said he will refuse to respond.

Roberto suggested players keep investments short at 3 to 4
days, to cope with choppy trading on continued political worries.

"Trading will be mixed, and it (the market) could go in either
direction," Roberto predicted.

However, stock analyst Ario Ardikhari at ABN AMRO Asset
Management, downplayed the impact of the rumors, saying the stock
market took little or no notice of them.

"We saw the market gaining last week, this was due more to
corporate rather than political news," he explained.

Amid persistent political woes, The Jakarta Stock Exchange
Composite Index managed to rebound on thin trading last week.

The market closed in Friday trading at 376.79, a notch up from
the previous week's close of 370.35.

Some stocks posted gains as news of their first quarter
financial results hit the market.

"For the week ahead, the market's attention will remain on the
outcome of corporate first quarter results," Ario went on.

While lacking clues on the political front, he said, players
are likely to react to rather than anticipate news about
President Abdurrahman and his foes.

Ario expected trading to be flat this week, with potential
more on the upside in continued selective trading similar to last
week's. (bkm)