Rupiah gains strength as markets cheer new cabinet

JAKARTA (JP): Weeks of waiting ended on Thursday for a jittery currency market after President Megawati Soekarnoputri unveiled a solid economics team in her new Cabinet, boosting the rupiah in the process to a ten-month high against the U.S. dollar.

Although rumors of a solid Cabinet had been making the rounds days before, the market cheered the announcement with more dollar selling.

The national unit flirted at around the 9,000 level against the dollar before it hit an intraday high of 9,050. Despite corporate demand offsetting the gains, the rupiah still ended the day much higher at 9,125 compared to 9,325 Wednesday.

PT Danareksa Sekuritas currency and stock analyst Feri Latuhihin said the market was pleased with Megawati's choices for her economics team.

"The team is very market friendly, very experienced and very credible," he told The Jakarta Post

Megawati placed two economics technocrats, Dorodjatun Kuntjoro-Jakti and Boediono, at the helm of her economics team. They have been appointed as coordinating minister for the economy and minister of finance respectively.

Supporting them is Minister of Industry and Trade Rini M.S. Soewandi, who made a name for herself when she led the country's largest auto manufacturer PT Astra International.

Other economics posts have also been given to credible and capable people, including Laksamana Sukardi as State Minister of State Enterprises and Kwik Kian Gie as State Minister of National Development Planning/Bappenas Chairman.

The length of time it took for Megawati to form her Cabinet had earlier raised suspicions of political bickering over key posts in the government.

Feri said the market would take future direction from the response of Indonesia's international creditors, and the Cabinet's unveiling of its economic platform.

He said positive signals on both fronts may send the rupiah back into 8,000 territory. However, the country's huge debt overhang threatens to shorten this foray.

He said corporations would want to scoop up the dollar while it was cheap. Thus, without positive signals the rupiah's upward trend could loose momentum.

But Feri added the dollar's weakening against other regional currencies had kept dollar hunters at bay.

If Bank Indonesia is able to seize the opportunity, he said, it could stabilize the rupiah at below 9,000.

Meanwhile, World Bank country director for Indonesia Mark Baird described the economic team as promising, and said he looked forward to working with them.

"It (the team) should be well received by the financial markets," he said.

Bank Indonesia Governor Sjahril Sabirin said he welcomed the new economics team and hoped for better collaboration in achieving macroeconomic stability.

"I am optimistic. The important thing is that this Cabinet must work hard," he said.

According to him, the rupiah has upward potentials to reach around the 8,000 level on confidence in the new government.

"Based only on economic fundamentals, the rupiah should be able to appreciate to around 8,000," he said.

Other economists also welcomed the new economic team, which they said consisted of credible and market-friendly people.

"I believe that this economic team can help revive investor confidence," said University of Gadjah Mada economist Sri Adiningsih.

But she noted that Rini's appointment might raise doubts due to her lack of a macroeconomic background amid a plethora of global trade issues, such as the Asean Free Trade Area (AFTA).

She said that with AFTA due to become effective next year, Indonesia had yet to come up with a clear position.

"In what direction is the government leading our industries?" she asked.

"However, I expect Dorodjatun can help resolve this problem," she said.

Sri suggested that Rini resign from all of her positions in the private sector to avoid possible conflicts of interest.

Economist Faisal Basri also praised Megawati's choices, saying this was a moment many had been waiting for.

"I give a thumbs up to the political parties who have put the country's interests above their own," he said.

Faisal said that under this Cabinet, the government could focus on accelerating economic recovery.

He had earlier warned that too much emphasis on political compromise could come at the expense of the economics team's credibility.

He also expressed confidence that Dorodjatun was capable of mending Indonesia's ties with the International Monetary Fund (IMF).

"I'm sure he'll do it, but he won't take things lying down from the IMF," he said.

Economist Umar Juoro said the new government should press ahead with its privatization program and the sale of assets controlled by the Indonesian Bank Restructuring Agency (IBRA).

These efforts would restore investor confidence, he said.

Chairman of the Indonesian Chamber of Commerce and Industry (Kadin), Aburizal Bakrie, also expressed his support for the new economics team.

He said Dorodjatun and Boediono were good choices for tackling the country's macroeconomic issues, while leaving the micro ones to Rini.(bkm/rei/05)