Stability, reforms could strengthen rupiah

Stability, reforms could strengthen rupiah

Dadan Wijaksana, The Jakarta Post, Jakarta

With positive sentiments still looming in the currency market,
the rupiah was expected to be able to maintain its strength
against the dollar this week, and even to strengthen a bit
further, analysts said.

As relative stability in recent months prevails here, currency
analysts at PT Currency Management Group Farial Anwar believe
that the local unit would test the Rp 9,300 level with Rp 9,200 a
real possibility.

"Unless there is profit taking, the trend is moving towards
the level of Rp 9,200 amid continued positive sentiments over
economic reform," Farial told The Jakarta Post over the weekend.

The rupiah has been gaining ground against the American
greenback with the dollar losing almost ten percent of its value
since the beginning of the year.

Last week, the local currency closed higher at 9,345 against
the dollar, compared to 9,525 in the previous week.

The rupiah's upward trend in recent weeks was attributed to
the revival of confidence from investors in the country's
economic outlook, resulting in capital flow in the stock market.

Farial said the flow of funds in the stock market, which has
been the reason for the Jakarta composite Index's jump by 40
percent from the start of the year, has strengthened the
portfolio on the supply side.

And coupled with little pressure from the demand front, the
rupiah tends to keep strengthening. "So as the dollar supply is
still outweighing demand, I do not see any reason for it (trend)
to change," he added.

A relatively stable political situation and a lack of security
disturbances provide a better climate for investment.

The completion of the crucial sale of PT Bank Central Asia
(BCA) to US-based Farallon last month gave an even bigger boost
to foreign investors' confidence.

And the latest sign of confidence came from the Paris Club of
creditor nations just over a week ago, when they approved some
US$5.4 billion worth of debt restructuring for the country.

The deal puts back sovereign debt payments by over 18 years,
and foreign development aid payments by over 20 years.

A dealer at a foreign bank also painted an optimistic outlook
for the rupiah this week on optimism that the government would
carry on with its reform program, such as privatization and
divestment plans of local banks.

The government has targeted to sell off five state enterprises
in the first semester, including international cell operator PT
Indosat, while Bank Niaga's divestment is underway with the sales
of Bank Internsional Indonesia (BII), Bank Lippo and Bank Danamon
to follow.

Meanwhile in the stock market, a technical rebound is expected
this week after a sharp decline of 1.2 percent last week on
continued positive sentiment from the rupiah's gains.

Heavy profit-taking in the last three days of last week's
trading dragged down the index to close at 532.78 points, after
reaching 550 points in mid-week. It was lower than 539.37 in the
previous week.

Stock and currency analysts at Danareksa Ferry Latuhihin said
that the correction was normal as most blue chips shares had
reached their fair value.

"There will be technical rebounds this week, led by second
liners and maybe from leading shares that were under pressure
last week, such as Astra," Ferry said.

Daily volume averaged 2.4 billion shares valued at Rp1.16
trillion (some $125.34 million) compared to the previous week's
two billion shares valued at Rp1.352 trillion.