Indonesian markets calm after censure storm
JAKARTA, Indonesia (CNN) -- Indonesia's markets sighed with relief Tuesday.
Parliament's second censure of President Abdurrahman Wahid, which came late Monday, moves a possible impeachment one step closer.
Around 15,000 of Wahid's supporters marched on the capital. But turnout was lower than expected and security tight, ready for as many as 50,000 demonstrators.
Indonesian business interests were pleased to see the capital remain trouble-free. Traffic, which often snarls Jakarta, was very light as nervous Indonesians stayed home.
"In the very short term, the market has reacted very positively to the lack of violence," James Castle, founder of the Castle Group consultants, told CNN.
Fallen rupiah gets a lift
That has given a shot to the beleaguered currency of the world's fourth most-populous nation.
Fears that the censure vote would spark violence pushed the rupiah to levels not seen since the aftermath of the Asian financial crisis.
Last week, it crashed through the 12,000 barrier against the U.S. dollar, a 31-month low. But it has rallied sharply this week as the censure passed hitch-free.
It was trading at 10,845/10,945 on Tuesday afternoon.
Indonesian stocks were also jumping. The Jakarta composite index leaped 1.8 percent to 365.311 on Tuesday afternoon. It gained 1.9 percent the day before.
But executives said Tuesday that they expected little progress in Indonesia over the long run. Political bickering has stymied the Indonesian economy and necessary reforms.
Stark contrast to Philippines
Indonesia's political situation was a stark contrast with the neighboring Philippines.
There, the arrest of former president Joseph Estrada on charges of economic plunder has sparked massive demonstrations and bouts of shooting in the streets of the capital, Manila.
At least three people have died and numerous demonstrators have been taken to hospital.
In Jakarta, Andre Cita, director of institutional sales for PT Kim Eng Securities, said Indonesians are watching events in the Philippines carefully.
Given that outside interests often paint Southeast Asian nations with the same brush, there is a threat to regional stability.
When Estrada was first forced from office, though, Indonesian markets rallied. Some of this week's rally was based on hopes that Wahid will ultimately step down.
Commercial interests would welcome that or indeed any move to stabilize the country's fraught politics.
"The business community just wants parliament to stop fighting with the president, whoever is the president, and just address policy," Castle said. "We'd like this process to be over one way or the other."
Drawn-out political skirmish likely
It is unlikely to be over any time soon. The Indonesian government is still very early in the impeachment process.
Wahid, who denies any wrongdoing in two graft scandals, has 30 days to respond to the censure. He says he will see out his term, which runs through 2004.
Given the likelihood of drawn-out political skirmishing, investors say the rally in Indonesian markets will not last.
The rupiah is "highly unlikely" to drop below 10,000 to the dollar, Cita said.
The Indonesian government has propped up the rupiah by selling some of its U.S. dollar holdings. But currency traders say such artificial solutions last a few days at best.
Experts say the best prospect for Indonesia's economy is that it stabilizes.
"We came from crisis to recovery, and we're on the brink of another crisis," Cita said. "The best you can hope for is avoiding the crisis, and waiting about recovery a little bit later."
The International Monetary Fund, frustrated with a lack of reform, continues to hold up a vital $400 million loan package.
The IMF insists that Indonesia recast its budget. It was based on the rupiah trading at 7,500 to the dollar, a sensible assumption when the budget passed in December.
But experts say the rupiah's descent will hurt. A new budget is likely, Castle said.
Government doing "very little" about problems
Meantime, most international investors and companies have given up on Indonesia.
"Clearly there are huge problems, and the government is doing very little about them," said George Worthington, chief Asia-Pacific economist with IFR Thomson Financial. "It's just wrapped up in political games."
Multinationals such as ManuLife Financial and Exxon Mobil have had huge headaches with Indonesian operations.
Indonesian police focused an investigation into a disputed government auction on Canadian ManuLife. Its officials complained of harassment and one was jailed for three weeks.
After heavy pressure, authorities finally in late April shifted their focus to ManuLife's local partner.
Oil giant Exxon has closed three gas fields in Aceh province, saying Indonesian forces cannot guarantee the safety of workers there.
The nationalistic Indonesian parliament has generally shown little concern for overseas companies. That will not improve suddenly, observers say, and in fact might worsen.
Nationalist politicians may be encouraged to stand up to outside investors and the IMF after the success of the censure vote.
Meantime, Indonesia's most serious problems fester. A vast amount of bad debts with its banks, many of which have been nationalized, still linger from the Asian crisis.
Experts like Worthington say there has been a total lack of commitment to dealing with the issue. He has been pessimistic about Indonesia's prospects since 1997.
"The long-running fear is that centrifugal forces overwhelm it, the army takes over and declares some sort of national emergency and steps into the power vacuum. That's still a possibility," he said. "I don't know what will turn it around."
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