Rupiah falls further but shares strengthen

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)

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