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Technology Stocks : INDONESIA'S PT TELECOM(TLK) -- Ignore unavailable to you. Want to Upgrade?

To: Jyoti sharma who wrote (287)	2/9/1998 8:17:00 PM
From: Duke	Read Replies (2) \| Respond to of 947

Indonesia looks headed for currency board system Capital controls seen in Suharto's talk of 'killing' strategy By S N Vasuki INDONESIA yesterday appeared headed towards a currency board system after President Suharto declared that Jakarta had to determine a "certain" exchange rate for the rupiah in order to stabilise the economy. Economists also interpreted his warning that the government was preparing a "killing" strategy to fight currency speculators as suggesting that Indonesia was planning to impose capital controls as an interim measure to reduce volatility in the rupiah. The Indonesian rupiah was trading in the 9,600 rupiah range against the greenback yesterday, after falling to 10,100 rupiah at one stage. A modest intervention by Bank Indonesia did not lift the currency to higher levels. At 9.30 pm last night, the rupiah was quoted at 9,800 against the greenback. The rupiah is expected to remain volatile this week as financial markets play the guessing game on where the rupiah-US$ fixed rate will be set under the currency board system. Mr Suharto made his comments at a meeting with members of the Indonesian Council of Muslim Scholars yesterday morning. "We have to determine a certain exchange rate so that all of our companies can do their financial planning accurately," Mr Suharto said without further elaboration. Mr Suharto reserved his harshest remarks to foreign currency speculators and warned that he would soon be introducing a "killing" strategy to fight them. "Intervention did not help. So in the near future, I will announce measures to fight speculators," he said. "Please believe that we will find a way to fight them. For that purpose, we need public support." Rumours about Jakarta introducing a currency board have intensified in recent weeks, particularly after a Feb 3 meeting between President Suharto and Professor Steve Hanke, an American economist who is the system's most ardent advocate. Moreover, IMF managing director Michel Camdessus gave a cautious endorsement of the currency board proposal over the weekend. "It's an option available, but not the only one," he said, warning that such a board would only work if Jakarta fully implemented the IMF-sponsored reform programme. Bank Indonesia governor Sudradjad Djiwandono yesterday confirmed that the government was studying a proposal to establish a currency board but stopped short of endorsing it. "We will see," he told reporters. "Don't be in too much of a rush." His ambiguous response has fuelled speculation in Jakarta that the central bank, which was recently granted autonomy to set interest rates, is not in favour of the proposal. Significantly, the impetus for establishing the board appears to have come from the First Family, who observers said are sold on the idea because it offers a solution to stabilise the rupiah. A currency board -- which was introduced in Hongkong in 1983 and Argentina in 1991 (both in the aftermath of a severe crisis of confidence) -- is contingent on the government meeting two basic principles. First, the government will need to give a constitutional commitment to exchange domestic currency for US dollars at a pre-determined fixed exchange rate. The central bank would cede its authority to the currency board and focus primarily on supervising the banking sector. Second, the currency board can only issue currency if it is backed by US dollar reserves. There is some concern that Indonesia's limited foreign exchange reserves -- estimated at US$20 billion (S$33.2 billion) -- was a major barrier to the establishment of a board but economists feel that this is not insurmountable. Stockbroking firm Socgen Crosby said in a recent report that credibility was the key for the successful establishment of a currency board. It said credibility "is derived from the full US dollar backing and constitutional impossibility of changing the arrangements". "The key is willingness to allow interest rates to rise to high levels," it said. "Given that the rates are already at high levels, the marginal costs on the economy is unlikely to be large in this case." Indonesian interest rates are already amongst the highest in the region and the IMF programme commits the government to taking a tight monetary stance. Mr Suharto yesterday drew a link between stable exchange rates and social unrest. "If our industries cannot get raw materials, they will halt operations," he said. "If industries stop, there will be unemployment and unemployment will trigger unrest." Financial markets generally welcomed the move to establish a currency board, including the suspension of currency convertibility. "The government can suspend convertibility of the rupiah as a temporary measure. Indonesia has a case because it is in the process of revamping its banking system," said Socgen Crobsy's Neil Saker. "This will help in limiting the outflow of capital in the short-term and full convertibility can be restored once the situation stabilises." However, Ng Bok Eng at the Daiwa Institute of Research feels that the imposition of capital controls will send a disturbing signal to financial markets. "The government will shoot itself in the foot if it resorts to such a measure," he said. "It will never work because foreign exchange markets are not fluid." In other developments, several hundred protesters marched to the main Jakarta office of Bank Indonesia yesterday calling for the resignation of Governor Djiwandono. The protesters, who were allied to opposition leader Megawati Sukarnoputri, criticised the central bank's policies which they said had led to a weak rupiah and rising prices.

To: Jyoti sharma who wrote (287)	2/10/1998 7:12:00 AM
From: tom	Read Replies (2) \| Respond to of 947

Do you worry that, as we have seen today, when the Rupiah strengthens as people expect Indo start a currency board then Telkom and Indosat fall back towards their pre-crisis levels? If Telkom fell back to 3000 Rps (it got down to 2000 just before the crisis) then at 5000 Rp/US$ TLK would trade at around US$10. That doesn't seem to leave much upside as TLK is already trading at US$9.7 in London at the moment. The downside is back down to US$2 if something unexpected happens in the meantime (which always seems to happen in Indo) Tom