Rupiah gains strength as markets cheer new cabinet

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)