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Friday, May 22, 1998 Published at 10:38 GMT 11:38 UK


Muted market reaction to Indonesia reforms
image: [ Investors are more cautious than the euphoric students.... ]
Investors are more cautious than the euphoric students....

The Indonesian stock market has given a cautious welcome to President Habibie's first appointments.

The announcement of his new cabinet saw shares remain firm in Jakarta. They had opened on a positive note after former President Suharto's peaceful departure.

There was a sharp increase in the number of shares changing hands compared to the thin trading of recent days.

Brokers said the market reaction to the new cabinet was muted as it was not much different from the old one.

Some traders said they believed that as long as President Habibie was in charge, the new cabinet would be unlikely to carry out the necessary reforms.

Firms linked to former President Suharto fell after sharp gains earlier this week.

Elsewhere in Asia, investors and traders did not seem convinced.

In Hong Kong, uncertainty over whether the new leadership could tackle the country's social and economic problems contributed to a fall in in the Hang Seng of 114.47 points to 9,555.98.

Traders said the mood was one of "wait-and-see".

The feeling of uncertainty also left shares subdued in Australia where the All Ordinaries index slipped 7.6 points to 2,725.90.

The pessimism was generally tempered by continuing relief that further violence had been headed off in Indonesia.

In Singapore, where shares were little changed overall, traders said few people took President Habibie seriously, but the fact that former president Suharto had responded to popular dissent and resigned after 32 years was a good sign.

"Habibie's not the end all and be all of the situation, but it's better than the Tiananmen Square image that investors had built in their minds," said one trader.

Shares in Tokyo were also lower, but domestic considerations appeared to be weighing more heavily on investors' minds.

Habibie 'unconventional'

[ image: President Habibie - ridiculed by some financial experts]
President Habibie - ridiculed by some financial experts
President Habibie is said to believe in 'big government', state intervention in the markets and likes large-scale, costly but not necessarily effective government projects. Amongst financial experts he has often been the butt of ridicule for his unconventional economic principles.

When Mr Suharto appointed him as vice-president, experts saw this as a snub to the economic reform programmes of the International Monetary Fund and the World Bank.

Now some analysts suggest that Mr Suharto may have only stepped into the background, effectively continuing to be in power.

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