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)