Hugh Bronstein, New York – Wall Street wants a clear victory for the opposition in Indonesia's general elections on Monday, though a messy government coalition is the more likely outcome, New York-based financial analysts said.
A win by the ruling Golkar party could spark riots by those opposed to the party that ruled Indonesia with an iron hand under former President Suharto, analysts said. Rioting would likely sour interest among investors who crave stability.
"The best result would be a majority vote for the opposition, not because I think the Golkar party would be bad, but because there is already too much hope in the population for an end to this 44-year old regime," said Martin Anidjar, an Asian debt analyst at J.P. Morgan.
A coalition of opposition parties is led by Megawati Sukarnoputri. If the opposition wins but Megawati is not decisively the top vote getter within the coalition, the formation of a new government could be troublesome, Anidjar said.
"The larger her vote, the more negotiating power she'll have as she tries to form a coalition government," Anidjar said.
Devi Aurora, Asia analyst at Standard & Poor's DRI, agreed the most reassuring outcome would be for a clear winner to emerge from the opposition.
"But there will probably be a distribution of votes among several opposition parties and none will be in a position to form a majority government," she said. "So it will probably be some time before we know what this government will look like."
Megawati's party, the Indonesian Democratic Party-Struggle (PDI-P), is expected to win one of the biggest blocks of seats in the new 500-member parliament.
Monday's ballot will be followed in November with the election of a new president. Megawati and leading Moslem figure and academic Amien Rais are viewed as the strongest candidates to succeed the unpopular incumbent, B.J. Habibie.
Although opinion polling in Indonesia is unreliable, Megawati seems to have solid popular support.
Anidjar said his feeling was that Megawati would win on Monday. "But my impression, like that of everybody else, is based on pictures of political rallies on the news and the fact she was able to become the leader of the opposition coalition," Anidjar said.
Indonesia's 7-3/4 percent bonds due 2006 were at a price of 73-1/2 Thursday. Last summer, during riots associated with the ousting of former President Suharto, the yield on bonds widened to about 1,800 basis points over US Treasuries. In recent months, as the market gained confidence that the election will be orderly, the bonds have tightened to about 800 basis points, or 8 percentage points, over yields on comparable Treasuries, Anidjar said. Tighter spreads reflect the perception of less risk.
Political uncertainty and economic crisis have slowed the pace of reform in Indonesia, Wall Street analysts said. The country's overall growth prospects in 1999 are more guarded than those in most other Asian emerging markets, such as Malaysia, the Philippines and Thailand, they said.
There is consensus among the major political parties that the country's economic policies should continue to follow the goals outlined by the International Monetary Fund. Indonesia has a stabilization program running with the IMF, but must abide by IMF economic targets in order to continue receiving disbursements.
So the market simply wants to see a popularly supported government that does not significantly change the country's economic direction, said Thomas Trebat, managing director for emerging markets research at Salomon Smith Barney.
"This is a suit of clothes that could be worn by any of the major party candidates. Megawati would come into office with more of a populist reputation, but could well become a pragmatist once she is in office," Trebat said.
Trebat pointed to Philippine President Joseph Estrada and Venezuela's Hugo Chavez as examples of politicians who ran as populists and then adapted to the global market economy once they started governing.