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Suharto’s Speech Eases Market Panic

May 19, 1998

HONG KONG (AP) _ From Singapore to Seoul, Asia’s battered markets took heart today from Indonesian President Suharto’s announcement that he will institute reforms, call new elections and ultimately step down.

As far away as South Korea, the currency rose in response to the news. Traders said the announcement fueled hopes that Indonesia could avoid a continuation of the violence that claimed 500 lives last week.

Before Suharto’s announcement, currencies and stock prices across the region fell sharply today as investors anticipated more trouble in the island nation. Panic-selling had gripped the market in Jakarta, and Indonesia’s woes dragged down many regional markets.

But later today _ after Suharto told Indonesia that he intends to step down before his term ends in 2003 _ Asian markets strengthened.

The South Korean won, which fell from Monday’s close of 1,444 to the U.S. dollar to 1,464 today, rebounded after the news and was trading at 1,437.

Singapore’s benchmark Straits Times Industrials Index rallied quickly after Suharto’s speech, shooting up higher than the opening level within an hour. By afternoon, it was 8 points above the opening, rebounding 22 points, or 1.7 percent, from its lowest point of the morning.

Analysts said traders had sought protection in dollars ahead of Suharto’s announcement, but unloaded some of them after the speech.

Nowhere was the reaction as strong as in beleaguered Indonesia. Although trading volume was low, the JSX Composite Index surged 6 percent on Suharto’s announcement. The rupiah currency, which had touched 14,000 against the dollar, rebounded to 11,900, up from Monday’s 12,150.

``The market is bouncing on optimism that there will be no further bloodshed,″ said Andre Cita, head of institutional sales at PT Bahana Securities.

James Bryson, a sales executive at PT ANZ-Panin Securities, said the speech was positive but said what mattered was whether Suharto carried out his pledges.

``If he does 60 percent of what he said he will do, it will be the right thing. Besides, it sends the right signal to students,″ Bryson said.

The news also buoyed the Singapore dollar, the Malaysian ringgit and the Thai baht.

In Tokyo, the market found the news from Indonesia one of the few positives helping to diminish uncertainty over the Japanese economy and Asia’s prospects.

``News that Suharto won’t be a candidate in the election is a relieving factor for the Indonesian situation, and a buying-back factor for the yen,″ said Yasuhisa Morikuni, assistant vice president at Bank of America in Tokyo.

Hong Kong remained in negative numbers. Besides Indonesia, the market was watching the weak property market and feeling the effects of Monday’s announcement that unemployment had reached a 14-year high of 3.9 percent. At midday, the Hang Seng index was down 1.8 percent.

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