Stocks tumble almost 9 percent, rupiah firm

Stocks tumble almost 9 percent, rupiah firm

JAKARTA (JP): The country's rattled stock market took another
big hit on Tuesday sinking almost 9 percent, while the rupiah
closed slightly firmer against the U.S. dollar, stock analysts
and dealers said.

Stockbrokers and analysts said that swirling market
speculation that the government would introduce a Malaysian-style
capital control system had triggered massive selling by both
foreign and local investors in the hard pressed stock market.

"The speculation forced most foreign investors to liquidate a
lot of their portfolios in the emerging market funds, including
Indonesia," Bahana Securities associate director and head of
equity sales Andre Cita told The Jakarta Post.

Widely circulated market speculation suggested on Monday that
the government, despite repeated denials by the monetary
authority, would impose such a capital control after
International Monetary Fund (IMF) Asia and Pacific director
Hubert Neiss said that short-term capital controls might have to
be adopted in Asia.

Bank Indonesia Governor Sjahril Sabirin reiterated on Tuesday
that Indonesia would not copy Malaysia's new foreign exchange
regime. But he did not rule out any changes in exchange rate
policy.

"We are looking into all possibilities, but not capital
control," Sjahril told journalists after meeting President
Habibie.

Cita noted that groundless rumors on a foreign exchange
control had weighed down sentiments on the local market, forcing
existing investors to pull out.

"There are just too many rumors in the market. Investors are
panicking and they are just selling off their stocks to cut
losses," Cita said.

The Jakarta Stock Exchange (JSX) Composite Index fell 8.9
percent, or 28.44 points, to break the 300-point level to a five-
year low of 292.15 on a total turnover of 311.69 million shares
changing hands valued at Rp 386.94 billion (US$33.21 million).

An institutional dealer with Trimegah Securindo Lestari said
joint-venture securities houses like Vickers Ballas Tamara, SBC
Warburg, Indosuez WICarr, Jardine Flemming and ING Barings were
net sellers.

The head of research at Trimegah Securindo Lestari, David
Chang, attributed Tuesday's decline in stock prices not only to
market speculation on a capital control but also on political and
social instability at home.

But he advocated that the government adopt a stringent capital
control because he believed it could revive the country's wrecked
economy.

"Actually, it's already late, when foreign private funds have
already left the country. But it's better late than never," he
said.

Unlike the stock market, the rupiah closed firmer against the
American dollar on Tuesday in moderate trading driven by market
jitters to cover short rupiah positions over a possible
implementation of a capital control.

Currency dealers said the rupiah shot up to reach a day high
of 10,850 to the dollar, but slid again to 11,075 at the close,
slightly stronger than Monday's close at 11,550,

"Many offshore operators cashed in their dollar holdings for
rupiah to cover their short positions on the rupiah," a chief
dealer with a local private bank said.

Dealers also said that persistent daily dollar selling for the
rupiah by state banks had partly contributed to the currency's
strengthening. (aly/prb)