Rupiah gains as tension cools down

Rupiah gains as tension cools down

JAKARTA (JP): The rupiah is poised to maintain its upward
trend this week on signs of abating political tension as the
market sees a compromise between conflicting parties nearing,
analysts predicted over the weekend.

The rupiah could renew its strength as market players see
that efforts are being made to end the country's political
impasse, they said.

President Abdurrahman Wahid looks as if he is open to a deal
with his political opponents, noted one forex dealer at a foreign
bank.

"We might not even have to go through a special session of the
People's Consultative Assembly if a political compromise can be
achieved beforehand," he said.

President Abdurrahman risks being impeached through a special
session of the People's Consultative Assembly in August unless he
is able to end a stand-off with legislators.

According to the dealer, the market thinks a political
compromise is more likely than impeachment. "This prospect may
keep the rupiah on its recovery path," he said.

Last week, the local unit rebounded sharply to finish trading
at 10,950, up from its previous close at 11,800.

Breaking pressure on the rupiah was last week's peaceful
passing of the House of Representatives' plenary session, which
issued a second memorandum of censure against the President.

Since early last month the rupiah has plunged on fears that a
second censure against the President would incite his supporters
to riot in Jakarta.

The second memorandum brought embattled Abdurrahman closer to
impeachment.

The market now trades on expectations that the President will
avoid impeachment by allowing Megawati to take over, the dealer
continued.

Such political compromise is widely predicted given Megawati's
strong political position. She chairs the leading party in the
House, which has also been advocating the impeachment
proceedings.

The dealer said the market also welcomed the initiative taken
by Megawati's party, the Indonesian Democratic Party of Struggle
(PDI Perjuangan), in bringing together other party leaders.

"The market is expecting some kind of agreement between the
parties when they meet," he said, adding that the meeting is
hoped to flesh out some certainty for the country's political
future.

PDI Perjuangan is sponsoring the meeting, which according to
him, is slated for Friday this week.

Aside from the meeting, the dealer went on, there is no other
major lead on which to trade.

He estimated that the rupiah would recover only slightly, as
hefty profit-taking last week removed much of its stem for
further gains.

"We've seen profit-taking last week, and others had cut losses
by squaring their positions," he said."Panic buying has stopped,
speculators have left ... it's going to be a boring week," he
added.

For this week, the dealer estimated the rupiah to trade at
between 10,600 to 11,200 against the U.S. greenback.

The stock market, on the other hand, could slide with last
week's rally inviting profit-taking, stock analysts said.

The Jakarta Stock Exchange (JSX) Composite Index last week
surged to 375.56 from the previous week's 347.68 as fears of
widespread rioting alleviated.

Baradita Katoppo, from local securities firm PT IBAS, said the
market's strong gains last week could trigger profit-taking
across the board.

"We're likely to see a market correction. The temptation to
continue taking profits will be strong," he said.

According to him, the market's support level might be 360.

He further said that the market was no longer sensitive to
quarrels among the political elite unless rifts ran the danger of
spilling over to the grassroots level, which almost occurred last
week.

On the economic front, Baradita went on, the market sees
little, if any, incentive at all.

"Our economy is like walking in the mud, we're moving forwards
but very slowly and with much effort," he said.

Stock analyst Roberto Pardede at PT Mandiri Sekuritas was more
optimistic about the stock market's potential to maintain its
recovery.

"We just need to be careful that the market may get
corrected," he said. (bkm)