INDONESIAN MARKETS TAKE HEART, RIOTS REPORTED.
JAKARTA, Jan 28 (Reuters) - Indonesia's financial markets took heart on Wednesday from
the government's latest reform measures in thin trading ahead of the country's major
festival.
But attacks by hundreds of Islamic school pupils in two small
Central Java coastal towns this week were a further warning to the authorities of the
tensions aroused by Indonesia's worst economic crisis in decades.
A duty policeman at Rembang said the situation was back to
normal after rioting in Kragan on Monday night and Sarang the
following night in which a total of 20 shops and a house were
damaged.
"There were no arrests and no casualties," he said, adding that the damage had been
done by about 800 pupils from local Islamic boarding schools. Other sources said the
buildings were owned by ethnic Chinese, who are frequent targets in times of economic
hardship and unrest.
Islamic boarding schools are a prominent part of rural Java,
educating millions of youngsters easily swayed by sometimes fiery
anti-Chinese rhetoric by some Moslem teachers.
The government announced further measures on Tuesday to
overcome the economic crisis that has sent prices and
unemployment soaring in the country of 200 million people.
The battered rupiah currency, which at its worst has dropped over
80 percent in value against the dollar since last July, continued to strengthen on Wednesday
on the reform news.
Spot rupiah closed in Jakarta at 9,850/10,800 after opening at
10,500/11,500, while the stock market ended a shade over two
percent higher at 485.94 points.
Millions of Indonesians have spread out through the archipelago in one of the
world's biggest annual movements of people to
celebrate the Eid Al-Fitr festival marking the end of the Moslem
fasting month of Ramadan.
The government is concerned over the potential for unrest through
the vast nation stretched for 5,000 km (3,000 miles) along the
equator and straddling major East-West trade routes.
There were riots over rising prices in several East Java towns
earlier in the month and panic buying in a number of cities including Jakarta,
but the country so far remains stable.
Financial markets are basically closed until next Monday, when the government
will see how the international financial community has accepted its economic
reform plans and a proposal for a voluntary pause in payments on its crippling
corporate foreign debt.
"This is a good package in principle...it has a lot of positives in it, we just
have to know the details and how they're going to do it," on Western banking analyst
said.
Economic analysts said President Suharto appeared to be
committed to forging ahead with sweeping economic reforms
agreed with the International Monetary Fund (IMF) in return for a
$43 billion bail-out.
But analysts said the key issue of a successor to the 76-year-old
leader had still to be resolved, and this was a major element in
investor uncertainty over the country's future.
Suharto himself has said he would seek a seventh five-year term in office in March,
despite unprecedented calls for him to step down at the end of his current term.
Analysts noted, however, these calls had become more muted as
Suharto appeared to exert his leadership to overcome the crisis,
which threatens the economic development he has proudly
presided over during the past 30 years.
"Now the economic situation is being worked out, you've still got
the political situation, and that's a race against time," one analyst said.
The focus of attention is who Suharto will accept as his
vice-president and potential successor. Several names have
surfaced, but the president has given no clear indication who his
choice might be.
The reforms announced on Tuesday included desposit and credit
guarantees for the country's commercial banks, opening them up to
foreign ownership, and a new institution to deal with failing banks.
Analysts said a notable absence from the proposals was reform of
the country's commercial code, including a viable bankruptcy law
to engender confidence in foreign investors.
A contact committee of international banks has been formed to
represent lenders to Indonesia's corporations and a steering
committee of borrowers are being set up to deal with a crippling
private sector foreign debt estimated at at least $66 billion.
The collapse in the value of the rupiah has left most companies
technically bankrupt and unable to repay their loans.
The two groups working on a repayment framework are expected
to get down to business next week, but some bankers have
warned the process could be a long one and not all creditors might get paid.
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