Markets sweating on volatile Jakarta polls

Business Asia, May 31, 1999 by Andrew Marshall

The risks posed to Indonesia's fragile economic recovery by its June 7 parliamentary elections will be at their peak before even a single vote has been cast.

For the markets, the campaign period which kicked off on May 19 is crucial.

The greatest tear is that an eruption of unrest will snuff out Indonesia's fragile economic progress and worsen the political uncertainty which has dogged shares and the rupiah for more than a year.

What markets want is a fair and peaceful campaign and an election which gives a clear mandate to one of the coalition blocs beginning to emerge from Indonesia's 48 political parties.

"Right now the main concern of the markets is that Indonesia gets through the elections safe and sound," said Mr Laksono Widodo, head of research at ING Barings in Jakarta. "People will worry about politics and policies later."

President B.J. Habibie goes into the election at the helm of an economy finally picking up speed.

The bad news for the beleaguered President and his ruling Golkar party is that genuine recovery remains months away and the recent halting advances of the economy will have little real impact on the electorate ahead of the elections.

Analysts say a solid return of investor confidence will only happen when -- and if -- Indonesia secures greater political stability, something that cannot take place until the elections are over.

"If a stable coalition is formed, with a lesser-of-evils President, you can then say the recovery will start," said Mr Michael Gilmore, head of research at DBS Securities in Jakarta.

There is little market focus on policies -- for one thing, few parties have set out any kind of coherent economic platform.

Some have hinted at measures such as capital controls or a currency board, but the need to rely on massive infusions of cash by donors led by the International Monetary Fund is likely to mean that more controversial policies never see the light of day.

Elections under former President Suharto were tightly scripted, with only three parties allowed to take part and a landslide for the ruling Golkar party never in doubt.

Despite this, riots and unrest were common during campaigning. With 48 parties contesting the polls and the iron grip of Suharto gone, many fear this campaign will reach new heights of violence.

The past few months have seen some green shoots appearing in Indonesia's devastated economic landscape.

However, analysts say it is too early to celebrate. Moreover, the recent good economic news has had little real impact on the lives of Indonesia's more than 125 million voters.

The main contenders

* B.J. Habibie, the incumbent President, is the ruling Golkar party's leader. Close ties to former President Suharto are a disadvantage. Support languishes at about 7 per cent.

* Megawati Sukamoputri is the daughter of former President Sukarno. Heads the Indonesian Democratic Party-Struggle (PDI-P) and has popular support. Running on a nationalistic platform.

* Amlen Rais heads the National Mandate Party (PAN). Chief instigator behind opposition coalition (which includes PDI-P and PKB). A champion of reform. Popular among moderate Muslims and urban intellectuals.

* Gus Dur is the near-blind cleric who leads Indonesia's largest Muslim organisation, the National Awakening Party (PKB). Popular on the island of Java, which is home to almost half of Indonesia's population.