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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: OVETUS who wrote (1367)	1/31/1998 6:26:00 PM
From: Rational	Respond to of 9980

OVETUS: I am sorry, I logged into SI after so many days to read your question today. There is a very nice story for why the INR/US$ is so low at this moment (it went down to 17000 and is now at 10000). IMO, it is political. Most prosporous Indonesians are ethnic Chinese (4%) who control about 75% of trade and Christians who do not like the autocratic Suharto. In fact, not many businessmen in Indonesia like Suharto except when they have his favor. Suharto's six children and cronies have amassed wealth through state-chartered monopolies. Nevertheless, most common Indonesians (90% Muslim) like Suharto because he has made them prosperous in 30 years of his rule, although personally Suharto amassed wealth at a far greater rate. The only way to unseat a dictator from power is to get the common people agitate against the leader. This could not be done for 3 decades. However, when international banks tried to exit SE Asian economies enmasse, the local currencies collapsed. INR first dropped to about 3000 per US$; this was not bad at all. But, the IMF botched up by asking Indonesia to close 15 banks. This resulted in a panic withdrawal of Rp and conversion of Rp to US$. Even then the Rp dropped to about 5000 per US$. This trend, however, gave the political opponents of Suharto a golden opportunity to speculate on the currency and drive down its value on very thin trades in order to force Suharto to submission. This has been a job of big businesses in Hong Kong and Singapore, IMO. But, there are opposing forces. Suharto is liked by the majority Muslim Indonesians who are more likely to agitate against the Chinese than against Suharto. China will not like the Indonesian Chinese to lose and may interfere; so the US had to step in to prevent the spread of Communism by the help of Suharto. Thus, while the US and other powers do not like Suharto's human rights records, they have no option but to support him. The Hong Kong and Singapore businesses had more to lose than Suharto. Japanese and German banks are poised to lose more than Suharto. Common Indonesians have been pawns in this game of artificially driving down the Rp. Japan, Singapore and US governments want to help Suharto by carrots and sticks via IMF. Suharto knows the real threats and so he is unlikely to back down from his promise to go along with IMF terms. Given the renewed vigor of implementation of new policies, Japan, Singapore and US will intervene (jointly) in the Rp/US$ market as they did in the wake of IMF visit. They backed down, temporarily, because Suharto indicated to appoint Habbie (a big spender nationalist) as the VP; Suharto got the message and is likely to back out. As soon as a rational VP nomination is announced, the Rp will rise to 5000 per USD through panic puying and then stabilize around 4000 or less. Economic reforms are in place. I think an acceptable VP will be announced soon; given that Mr. Yen has stated that Rp is grossly undervalued and that it sould go back to 4000-5000 level before getting stronger. But, the political risk is real because Suharto can surprise. Indonesia has also announced a "pause" on international debt repayments. This has strengthened Rp somewhat, but the full effect (either way) will be seen next week. Logically, the USD corporate debt should be reduced to a Rp-denominated level of 2500 times the USD debt. This will benefit everyone since the Rp will instantly strengthen. The lenders were as guilty as the borrowers and ordinary Indonesians should not be sufferers. [In the wake of the Great Depression, the Congress cut the US corporate debt owed to banks by this logic while banks insisted repayment by gold standards.] Sankar