Rupiah breaks 10,000 but stock rally stops

The rupiah gained more than 10 percent against the U.S. dollar on Monday and reached 9975 on Tuesday morning

JAKARTA, Indonesia -- The jubilance in financial markets over the prospect of political stability in Indonesia was short-lived.

The Indonesian rupiah was gaining ground Tuesday, though. It broke the 10,000 barrier against the U.S. dollar for the first time since March 16 to reach 9975.

On the stock market, the Jakarta composite index opened down, and was off 1.3 percent at 464.072 mid-morning and falling.

Indonesian stocks hit a 10-month high on Monday, closing up 2 percent at 473.155.

Beyond Jakarta's initial boost on Monday, though, investors say any good news will likely take a year or more to settle in.

The currency gained more than 10 percent against the U.S. dollar on Monday, and set a four-month high on Tuesday. It reached 9,975 to the greenback in morning trade but slipped back to 10,200.

A stronger currency gives the government more flexibility with its budget and eases inflation, a mounting concern.

Markets will take time to see results

Traders ran stocks up on Monday, newly confident as it became clear popular vice president Megawati Sukarnoputri, daughter of founding president Sukarno, would replace embattled Abdurrahman Wahid as president.

Investors say a settled political scene is desperately needed in Indonesia, after 12 to 18 months of turmoil.

The change will also likely benefit neighboring markets in Singapore and Malaysia. But they were also down on Tuesday morning, looking more at losses on Wall Street overnight than the political showdown next door.

Now the hard work begins. Investors say they have heard little concrete from Megawati about how she plans to tackle the economic and civil problems that have put off investors and overseas companies.

Indonesia makes up less than 1 percent even of Asian indexes, and Megawati taking over is unlikely to lure international fund managers to increase that.

Megawati's installment may help restore Indonesia's relationship with the International Monetary Fund, however. A vital $400 million loan has been on hold since December, with the IMF dissatisfied with reforms under Wahid.

The IMF said Monday it hopes to get the loan back on track in the second half of August, despite Wahid's impeachment. The loan is part of a $5 billion program that the country desperately needs.