Rupiah faces bleak outlook again this week

By Bernie K. Moestafa

JAKARTA (JP): The rupiah faces a bleak outlook again this week as anticipation of a political showdown between President Abdurrahman Wahid and his opponents at the end of this month is expected to further spur dollar buying, analysts predict.

They said the rupiah could breach the 12,000 level against the U.S dollar.

"In anticipation of political problems, people buy dollars ahead of time," said president of Vickers Ballas Tamara, David Chang, over the weekend.

He said that with political tension escalating fast, speculators and panic buying would rule the market.

A House of Representative plenary session on April 30 will decide whether to issue a second memorandum of censure against the President, which could bring him closer to impeachment.

Abdurrahman has lambasted such a move as unconstitutional and has insisted on serving his full term until 2004.

Fears that supporters of both sides will pick up the fight from the political elite have increased in the past few weeks. Thousands of the President's supporters have pledged their lives for him, in what they believe would be a jihad against his enemies.

On April 29, supporters of the President will flood Jakarta to join a mass prayer organized by Abdurrahman's Nahdatul Ulama organization.

In response, organizations of various backgrounds have threatened to mobilize their members against President Abdurrahman's supporters should they enter Jakarta.

Chang said fears that the capital could descend into anarchy ran high. This, he said, would keep fueling the rupiah's descent.

He said that only a compromise -- the President surrendering his power -- could defuse the tension. "I don't think any leader in this world would want to be responsible for leading his country toward destruction," he said.

Chang warned that the rupiah could enter a free fall again, like it did during the peak of the economic crisis in 1998.

Faltering support from international lenders can no longer cushion the impact of the rupiah's fall, he added.

With no political solution in sight, he said, the financial market might see another crash similar to that in 1998. "Back then the rupiah's fall surprised us; this time we know what's coming," he said.

President Abdurrahman on Thursday warned of a national rebellion if legislators proceeded with a second censure of him.

The rupiah took the warning badly, breaching the important barrier of 11,000 against the greenback.

But Friday trading brought the rupiah close to the 12,000 level, ending at 11,925 to the dollar, down from the previous week's close at 10,580.

Currency analyst Farial Anwar said a thin dollar supply amid soaring demand for the unit caused Friday's volatile trading. "Whatever price you ask for the dollar, they (the market) will buy it," he explained.

The market also realizes that Bank Indonesia has only limited resources to intervene, he said. He added that concerted efforts between state companies and the central bank to shore up the rupiah had failed.

Farial shared David's view that the rupiah was close to repeating its 1998 free fall, as it was already highly volatile.

He said that expectations of the International Monetary Fund (IMF) soon disbursing its long delayed US$400 million tranche had run aground.

"It's much clearer now that the IMF wants to delay the third tranche as long as possible and other international lenders will do the same," he said.

As a result of the worsening political climate, Farial added, almost all macroeconomic indicators are suffering, adding yet more pressure on the rupiah.

Farial said that demand for the dollar was so high that even stock investors were buying the foreign unit. This, he said, brought down the local stock market index.

Stock market analyst Zulfiqar at Mandiri Sekuritas said that domestic pressure on the stock market had outweighed positive development outside.

"Gains in regional stock markets, the Fed's (U.S. Federal Reserves) interest cuts, none of that has helped ours," he said.

The Jakarta Stock Exchange (JSX) Composite Index recorded sharp falls for almost the entire last week, to end at 342.85 from 365.98 in the week before.

Zulfiqar said he expected continued selling pressure across the board, with a possible rebound to occur among only blue chips.

According to him, the JSX index might further drop to breach the 340 level in trading this week. (bkm)