Upsurge in political turmoil mutes local financial markets

JAKARTA (JP): The country's financial market continued to succumb to heightening political instability at home and regional bearish sentiments, dealers and analysts said on Wednesday.

They said the rupiah dipped to an intraday low of 12,450 against the U.S. dollar before recovering to 11,800 at the close of trading due to dollar selling by state banks.

The local stock market also suffered losses, dropping 1.4 percent.

Bank Indonesia Governor Sjahril Sabirin blamed massive student protests against the government for the market's fall.

"But we hope it's only a temporary issue," Sjahril said, noting that the rupiah should strengthen again soon.

About 1,000 students staged vociferous demonstrations at the House of Representatives on Monday, demanding President B.J. Habibie's resignation.

On Wednesday, a massive student protest met the President in Surabaya, East Java, where he was making a one-day visit.

Before the students decided to take to the streets again, the rupiah was trading at 10,800 against the dollar.

Currency dealers said that if student protests continued, the currency would slip further.

They said the rupiah's comeback over the past few weeks was due to Bank Indonesia's interventions through state banks.

Sjahrir acknowledged that the central bank had intervened in the market over the last three weeks by selling between US$10 million and $15 million a day to prop up the rupiah.

The increasing political tension also dampened trading on the Jakarta Stock Exchange (JSX), stockbrokers said.

The benchmark JSX Composite Index fell 4.65 points to 325.76 on Wednesday on a total turnover of 168.45 million shares valued at Rp 248.93 billion ($21.09 million).

Losers outpaced gainers 50 to 31 with 86 stocks unchanged.

Stockbrokers and analysts said student protests triggered selling in the market, which had already been abandoned by most investors.

"The social and political tension at home is the key factor behind the fall of stock prices today," the head of research at Sigma Batara Securities, Fadjar Limin Sutandi, said.

In addition to political tensions, analysts attributed the fall in stock prices to high interest rates in the banking system.

They said Bank Indonesia's high-yield, low-risk one-month promissory notes (SBIs), which are still offered to the public, had practically paralyzed the equity market.

Bank Indonesia has held weekly auctions for its one-month SBIs, which hit 69.9 percent on Wednesday, compared to 70.58 percent last week.

"If this high rate prevails, no one will invest in stocks," an institutional sales broker with Trimegah Securindo Lestari said. (rei/aly)