Rupiah falls further but shares strengthen

Thu, 22 Jan 1998, 00:00 WIB | Source: JP

JAKARTA (JP): The rupiah crashed to an all-time low of almost
12,000 to the U.S. dollar yesterday on strong dollar demand and
growing political concerns, especially on the vice presidency
issue, currency dealers said.

But as the rupiah fell, stock prices on the Jakarta Stock
Exchange (JSX) rose 4 percent on positive sentiment on blue-chip
stocks like Telkom, Tambang Timah and Indosat, brokers said.

Currency dealers said the currency market had discounted the
announcement of Soeharto's readiness to stand for a seventh five-
year term as president.

"Market players look at the negative side of our political
situation, such as the vice presidency issue. Besides, they are
still concerned with the handling of our huge private debt," a
local private bank chief dealer said.

The spot rupiah fell into uncharted territory to 11,700 in
Jakarta during lunch break yesterday before recovering to
11,500/11,800 at the close against an opening of 10,000/10,500.

Dealers said the government's move to formalize the second
round of a reform program arranged by the International Monetary
Fund in exchange for a US$43 billion bailout package failed to
impress the market.

They said Jakarta traders could only see the rupiah continuing
its fall as most of them had lost their trading lines with
foreign counterparts -- even with their peers in Jakarta.

"The Jakarta market is practically empty. Most rupiah/dollar
trade has been executed by banks in Singapore," a chief dealer
said.

"Singapore was quite busy today (yesterday). I heard financier
George Soros entered the market to sell his rupiah holdings. If
he did so, I guarantee he lost a lot from holding the rupiah,"
the dealer said.

Currency dealers said the rupiah sagged further on reports
that Indonesian corporations were resorting to rupiah payments
for their U.S. dollar debts.

They said more and more private Indonesian companies and banks
had settled their offshore obligations with rupiah, which forced
offshore parties to cover short dollar positions.

"This situation has forced local banks to buy dollars at any
level today (yesterday) as they are afraid foreign players, with
excess rupiah, will kick the currency down further," another
local bank dealer said.

But the main negative factor seemed to be news that State
Minister of Research and Technology B.J. Habibie might be named
vice president in March, making him a potential successor to 76-
year-old President Soeharto.

Soeharto confirmed Tuesday that he would seek a seventh five-
year term in March and dropped hints that his next vice president
would be a man of Habibie's background.

Criteria

Criteria released by the dominant political faction Golkar
also contained a requirement that the next vice president should
be knowledgeable about science and technology, bolstering the
view that Habibie was the front-runner.

"The market is negative over Habibie," AFP quoted Sani Hamid,
an emerging market analyst with Standard & Poor's MMS in
Singapore, as saying.

"Political analysts suggest that he doesn't have a good
relationship with the military, and the market doesn't like his
theory of economics," Hamid said.

"The situation is not being helped by rumors Soeharto has
picked Habibie as his successor," one trader at a U.S. bank in
Australia was quoted by Reuters as saying.

"The market sees him as one of the old guard who is even more
of a believer in interventionist policies than Soeharto," the
trader said.

Callum Henderson, managing analyst at MMS International in
Hong Kong, said Habibie's reputation for profligate spending flew
in the face of austerity required by a US$43 billion bailout deal
from the IMF.

There was also concern about his lack of a military
background, Henderson told Reuters.

"Is he the kind of person the market wants because of the IMF
terms for austerity, and also does the Army want him? These are
the issues markets are focused on right now," he said.

If Habibie is appointed vice president, "you can turn out the
lights," said Eugene Galbraith, a Hong Kong-based global research
director for ABN Amro Hoare Govett.

"You won't want to see what is going on," added Galbraith as
quoted by The Asian Wall Street Journal.

The JSX composite index closed 17.96 points higher yesterday
to 466.00 with 653.6 million shares changing hands worth Rp
823.63 billion (US$71.87 million).

"The increase of the main price index does not reflect a
bullish market," Edi Widjoyo, an analyst from Mashill Jaya
Securities, said. (aly)