Thu, 04 May 2000

Rupiah undervalued due to volatile politics

JAKARTA (JP): The rupiah is undervalued due to lingering volatility on the Indonesian political front, according to an executive of a foreign hedge fund.

"Theoretically the rupiah is still undervalued. It should range between Rp 6,500 and Rp 7,000 (against the dollar)," Calvin Y. L. Ho, senior portfolio manager at Citicorp Investment Bank Ltd. of Singapore, said on Wednesday.

Selling pressure on the Indonesian currency continues because there are concerns with the inconsistency of the country's policymakers, he said.

He acknowledged the pressure on the rupiah was also due to high demand for the dollar, but said the major factor behind the rupiah's weakness was uncertainty in the country's political climate.

"Policymakers continue to have their games," he said, adding that policies in Indonesia were based too much on political considerations. "There is now a tendency (by policymakers) to adopt populist policies."

The Indonesian currency fell to a six-month low against the dollar on April 21 to Rp 8,005, from Rp 7,780 on the previous day due to rumors of an alliance to oppose President Abdurrahman Wahid.

The rupiah inched up on Wednesday to close at Rp 7,970 against the dollar from Rp 8,045 on Tuesday.

Bank Indonesia Governor Sjahril Sabirin said on Monday the domestic political situation was still weighing on the exchange rate of the rupiah against the U.S. dollar.

Sjahril reiterated that once the political uncertainty subsided, the rupiah should return to the 7,000 level or stronger against the dollar.

"The market is still waiting for more favorable developments in politics," he said following a meeting with senior economic ministers.

Ho said investors were turned off if policies changed too frequently over the medium term of investment.

He said Indonesia's fundamental indicators had showed improvement in the past several months reflecting a growth in the economy.

For exporters, the crisis made Indonesia very competitive not only due to the depreciation of the rupiah, but also because of the lower costs of labor and raw materials, he said. (udi)