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)