Mantik Kusjanto, Jakarta – The IMF's executive board is expected to give Indonesia's reform programme its seal of approval on Monday, but economic analysts said even this was unlikely to stimulate the country's battered financial markets.

They said politics was the key issue setting the direction for the rupiah currency, as well as implementation of economic reforms.

The board of the International Monetary Fund is due to review Indonesia's progress on reform and is expected to release immediately $1.0 billion from a $3.0 billion balance of payments loan held over since mid-March.

The full loan is due to be disbursed over three months, but the initial payment will trigger several billions of dollars in assistance from other agencies and nations committed to backing Indonesia in its economic crisis.

But currency dealers said the market appeared to be focusing on political matters rather than economic considerations.

The underlying worry now was the escalation in student protests demanding swift political and economic reforms and that President Suharto step down after 32-years in power to take responsibility for the economic crisis.

"The strength of the rupiah is no longer determined by economic factors. The weight of non-economic issue is playing a greater role," said Pande Raja Silalahi, economist at Jakarta's Centre for Strategic and International Studies (CSIS).

He said the shift in market perception was reflected in a stagnant rupiah value against the dollar despite repeated interest rate rises by the central bank.

The rupiah was little changed throughout April at around the 8,000 level against the dollar.

"The high political risk of Indonesia seems to have prevented (capital) inflows in central bank certificates (SBIs) despite the attractive returns," Silalahi said.

The central bank has raised its key interest rates twice in five weeks to prop up the beleaguered rupiah.

The rupiah's collapse from around 2,400 to the dollar last July triggered the crisis, causing prices and unemployment to shoot up, throwing most companies into technical bankruptcy and bringing trade to a virtual halt.

Analysts said investors were concerned over the country's stability with thousands of students demonstrating on campuses throughout the nation of 200 million people almost daily.

The government on Saturday quoted President Suharto as telling top government, political and military officials the previous day that he was not against political reform, and talks could start immediately.

The government issued a statement saying electoral reforms could be expected before the next national polls in 2002. The statement was issued hurriedly after two cabinet ministers had failed to get Suharto's message across when briefing journalists.

The 76-year-old Suharto was re-elected for a seventh five-year term in office in March, and another factor concerning analysts and investors is the state of his health after a bout of illness late last year.

Political analysts said it now remained to be seen whether the students would accept the offer to discuss reforms, or escalate their demonstrations.

"It's getting serious on the political front. Student protests are gaining momentum and opponents of Suharto's rule are raising their voices," one analyst said.

Meanwhile, the stock market continued its slide as high interest rates and political and economic uncertainties dampened sentiment.

The composite index dropped almost nine percent last week to an 11-month low of 448.53 point by Friday, with the market likely testing even lower levels.

"With a domestic interest rate of 50 percent, there is really no incentive to buy equities at the moment," said Stephanus Partono of Goldman Sachs in Singapore.