Greg Earl, Jakarta – Indonesia's financial markets are showing the first signs of stability in three weeks, giving the Government a much-needed chance to regain its management credibility with the annual Budget to be delivered in the first week of January.
The rupiah dipped below 5,000 to the US dollar for a while on Friday in a tenuous recovery from fears a week earlier that it was set to plummet past 6,000.
Many analysts feel it will now hold a little below 5,000 as most speculators close their books for the Christmas period.
Dealers say there was some evidence of exporters selling dollars as fears of a further blowout in the rupiah receded, although the central banks have also maintained a tight monetary policy, with overnight rates around 27 per cent on Friday.
The Jakarta Stock Exchange is also showing some sign of halting its 50 per cent plunge over the past five months, actually closing up almost 4 per cent for the week at 378 on the JSE Index on Friday.
But the market remains nervous about when companies will start acknowledging the impact of the currency's dramatic fall. Ratings agency Standard & Poors contributed to the concern on Friday by downgrading the credit rating of three companies.
Indonesian companies owe at least $US65 billion ($102 billion) in foreign debt, which the country manager of ABN AMRO, Mr C.J. de Koning, estimates has a 1.5 year maturity, implying that about $US43 billion – or $US3.6 billion a month – must be rolled over or repaid in the next year.
Combined with total interest of at least $US6 billion, the companies have to find about $US49 billion in the next year – equivalent to about 45 per cent of Indonesia's gross domestic product at current exchange rates.
Opinions vary about what level of exchange rate the corporate sector needs to survive, but one foreign banker with many years of experience in Indonesia says 3,800 is about the highest level most companies can withstand.
According to various calculations by Jakarta stockbrokers, at the 4,500-5,000 level the total shareholders' equity of the top 30 to 50 listed companies is wiped out by short-term interest and repayment liabilities.
President Soeharto called his top economic ministers together for the first time in several weeks on Friday to consider a draft Budget, which is expected to be finalised on Wednesday before being delivered on January 6.
But it is possible that the Government may push ahead with an announcement on the merger of State banks and a new corporate merger law before the Budget.
There is also speculation that Bank Indonesia could launch a substantial push to boost the rupiah on the final day of the year to give companies and banks a better year-end figure with which to close their books.
After a frenzied start to the year as one of the region's hottest stockmarkets, the JSX looks set to close 1997 with a capitalisation fall of about 30 per cent, from Rp215 trillion at the end of 1996 to about Rp150 trillion this week.
But in US dollar terms the fall has been devastating, with the bourse now valued at about $US30 billion compared with about $US90 billion at the end of last year.
INDONESIA's economic woes are likely to intensify, as a recession and ballooning foreign debt are likely in the wake of its currency losing more than half its value against the dollar in less than six months, according to an economists' review.
UBS Global Research says that the sharp rupiah depreciation is leading to growing debt service payments and will push even more corporates into bankruptcy.
"A recession now looks unavoidable – the magnitude of which will crucially depend on near-term developments," UBS economist Christa Marti says in the report.