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Indonesian markets edgy over new protests

Source
Reuters - May 8, 1998

Jakarta – Indonesian financial markets were edgy on Friday on renewed student protests and on continued unrest and looting in cities in north Sumatra.

Students ignored a call from the Indonesia's powerful military chief to halt their protests and staged a mock trial of President Suharto in Jakarta on Friday, condemned him to death and burned him in effigy.

In the north Sumatra city of Medan, the scene of violent student protests for reform and riots over big fuel and electricity price hike, demonstrators denounced Suharto as the 'Son of Satan" and demanded he be put on real trial.

The rupiah recovered to a high of 8,750 per dollar from an opening of 9,450 before edging back down to 9,150 at the close.

The stock market fell 0.49 percent to 434.66 points on declines in dual-listed stocks, those that may present an overnight buying opportunity in New York and London when the rupiah is weak.

Stock brokers said investors sold those dual-listed stocks as the rupiah bounced back from low Thursday levels.

Dual-listed stocks Telkom, Tambang Timah and Indosat all were lower on Friday, driving the composite index down, although gainers beat losers by 69 to 39. A chorus of reform demands from establishment organisations grew louder with church leaders representing more than 10 million Protestants throwing their support behind the student protests. Earlier in the week a leading Moslem intellectual organisation urged wide-ranging reform.

Violence flared after sharp hikes in fuel and transport prices took effect earlier this week, adding further misery to ordinary Indonesians facing a wage freeze, rising unemployment and higher food prices.

Currency dealers said the rupiah bounced back from two-month lows of 10,000 per dollar it reached on Wednesday because of riots and looting in the north Sumatra city of Medan. But the rebound was mostly due to technical factors. Offshore investors squared off their long dollar positions ahead of the long weekend. The foreign exchange market will be closed on Monday for a public holiday.

Dealers said the market also largely ignored a central bank rate hike of an average of 7.5 percentage points on Thursday, an IMF loan disbursement and the Friday start of talks in Tokyo about Indonesian debt.

"It's now the socio-political dimension which dictates the market. It takes some time to get this kind of problem under control," one local bank dealer said.

Dealers said the market was also worried by a planned trip of President Suharto to Egypt.

Suharto is due to visit Cairo from May 11 to 13 for a summit meeting of 15 developing countries, followed by a formal state visit to Egypt amid political and economic woes at home.

Currency dealers said the market was worried whether the government could maintain control of the worsening situation with Suharto away for so long.

"The situation remains very tense and the government's moves remain closely watched," said Thio Chin Loo, strategist at Paribas in Singapore.

"We remain sceptical that a change in government will provide a solution to Indonesia's current problems, as there is no other credible party to succeed the present team, and if Indonesia were to adhere to the IMF reform program there is little alternative other than to make the necessary adjustments now."

US Treasury Secretary Robert Rubin urged Indonesia to show restraint in dealing with social unrest but the military has said it will be tough on protesters.

Dealers said the central bank rate hike was not sufficient to allow foreign investors to lock in their money in high-yielding central bank paper because implied yields for swap rates were still much higher than the return.

"It's not enough to attract inflows in central bank papers because of increased risk-premiums for Indonesia," one said.

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