Rupiah volatility 'to subside in 1999'

JAKARTA (JP): Local and foreign economists predicted on Wednesday that the rupiah would be more stable next year despite lingering worries over the country's political instability.

Sjahrir, the president of the Institute for Economic and Financial Research (ECFIN), said the positive trend of many economic indicators, particularly the falling estimate for the year-end inflation rate, would have a significant effect on stabilizing the rupiah's exchange rate against the U.S. dollar.

"The worst is over in terms of volatility. The rupiah will be more stable in 1999 despite the upcoming general election," he said at a seminar on Indonesia's 1999 economic outlook held by Citibank.

Sjahrir said, however, that he could not predict whether the rupiah would actually strengthen next year.

A senior investment officer of Citibank Global Asset Management Asia-Pacific, Anthony Muh, agreed there would be reduced volatility in the rupiah market next year and that this would improve earnings transparency.

But he maintained a bearish outlook on investing in Indonesia.

"From the international perspective, there are more opportunities in Thailand and Korea which are showing more progress and better political stability," he said at the same seminar.

"This does not mean we don't believe in Indonesia's economic recovery. It will recover but will take a longer time," he added.

He also said that from a macro perspective there was very little reason to buy Asian equities.

"Markets can't yet discount a bottom let alone a recovery," he pointed out, adding that policy risk was rising and further currency weakness was still expected.

"Although policy initiatives have led to lower interest rates which have been positive for the markets, further market corrections cannot be ruled out," he said.

The rupiah has been extremely volatile during the past year, moving from 2,450 against the dollar before the crisis in July last year to almost 17,000 in January. It strengthened to 8,000 after the government renewed its commitment to an International Monetary Fund (IMF)-led economic reform program but plunged back to around 16,000 in June following the massive May riots which led to the resignation of former president Soeharto.

The currency, however, has managed to stabilize at around 7,500 over the past couple of weeks despite continuing political unrest which culminated in a deadly clash between protesting students and security officials on Nov. 13, and racial rioting on Nov. 22.

The rupiah strengthened slightly on Wednesday to end the day at 7,475 against the greenback from 7,600 on Tuesday.

The inflaton rate is also declining.

Bank Indonesia Governor Sjahril Sabirin said on Wednesday that he was pleased with the current level of the rupiah.

He said that he was upbeat the Indonesian currency could strengthen further in the coming days.

Information Minister Muhammad Yunus said Wednesday the inflation was at zero for the first three weeks of November, but rioting and looting could hike consumer prices, particularly those of essential goods,

Inflation, which had advanced at a galloping pace for much of the year, turned to deflation for October when the consumer price index was registered at -0.27 percent

ECFIN's Sjahrir admitted that political risk would remain especially with the upcoming general election in 1999, and with the huge problem of increasing poverty.

"But if you ask me whether is still possible to invest in Indonesia, the answer is yes," he said.

"This is the best time to buy. The economy can't get worse," Sjahrir said, pointing out that despite the Black Friday clash and the rioting the rupiah had managed to hold its position.

Sjahrir also said that a change in government as a result of the 1999 general election should not be a concern because the new government would not make any major policy changes.

"My suspicion is that policies will not be that different. They still have to work with the IMF," he said, adding that a new clean government would create lower business costs through the eradication of corruption, collusion and nepotism. (rei/prb)