Rupiah expected to strengthen soon

Rupiah expected to strengthen soon

JAKARTA (JP): Coordinating Minister for Economy, Finance and
Industry Ginandjar Kartasasmita predicted on Wednesday that the
rupiah would get stronger after next week's general election.

He said that both the local currency and the economy would
further gain strength with progress in the bank recapitalization
program and corporate debt restructuring.

"After the election, with political certainty, I think it (the
rupiah) will strengthen," he told reporters ahead of a cabinet
meeting.

"God willing, the economy will recover by itself if all the
economic programs including bank recapitalization and corporate
debt restructuring are implemented," he added.

Indonesia is set to hold its first multiparty general election
on June 7 after more than 30 years under the authoritarian rule
of former president Soeharto.

The election campaigning activities which started on May 19
will end on Friday. The campaigning has so far been relatively
non-violent despite the bloody rioting that took place in several
parts of the country.

But the rupiah closed slightly lower at Rp 8,150 on Wednesday
against the U.S. dollar from Tuesday's close of Rp 8,100 amid
fears of possible violence in the final days of the election
campaign.

The Indonesia Democratic Party of Struggle (PDI Perjuangan) is
set to hold its final campaign today in Jakarta and its massive
number of supporters are expected to parade all through the main
streets of Jakarta, causing long traffic jams.

The ruling Golkar Party is scheduled to hold its final
campaign in Jakarta on Friday.

Ginandjar said that for the time being the acceptable level of
the currency was at Rp 8,000 to the dollar.

"For now, the market values the rupiah at around this level
and the government is happy with that," he said.

Ginandjar said that the campaign had not caused a negative
impact on the economy as the electioneering activities turned out
to be non-violent.

He pointed out the positive development in key economic
indicators such as inflation, interest rates and the rupiah.

Inflation in May was negative 0.28 percent, which was the
country's third month in a row of deflation.

Bank Indonesia Governor Sjahril Sabirin expected on Tuesday
that inflation this year should be in the range of 10 to 13
percent.

The low inflation expectation and the relatively stable rupiah
has provided the central bank with room to allow domestic
interest rates to decline during the past few months.

Sjahril said that Bank Indonesia targeted its benchmark
interest rate to go down to the 20 percent level by the end of
this year.

The average interest rate of a Bank Indonesia one-month SBI
promissory note fell to 24.65 percent at Wednesday's auction,
compared to 26.12 percent last week.

Some analysts, however, warned Bank Indonesia that a further
decline in the interest rate would be detrimental to the rupiah
because of the anticipated remaining political and economic
uncertainty.

"An interest rate of 26.12 percent is already near the parity
level. And if you continue to push down the rate, the rupiah will
weaken," said a market analyst.

He said that the country's political landscape would remain
unclear over the next several months ahead of the presidential
election in November.

He added that questions on how the government would secure
financing for its costly bank recapitalization program without
causing a budgetary strain, and how the government could push bad
debtors of domestic banks to repay their nonperforming loans were
among the remaining economic uncertainties.

The Indonesian Bank Restructuring Agency and several domestic
banks announced on Tuesday their list of debtors in a bid to push
them into debt restructuring talks.

The bad debtors, particularly at the seven state banks, are
mostly well-connected businessmen who had been reluctant to agree
to a restructuring agreement because of a strong possibility that
they would have to give up a large slice of their businesses to
repay their debts.

The analyst said the rupiah could weaken because more local
corporations would have to purchase dollars following their
foreign debt restructuring agreements with creditors.

"Debt restructuring also means debt repayment," he added.
(rei/prb)