Indonesian leader calls for restraint after presidential stand-off

JAKARTA - Indonesian President Susilo Bambang Yudhoyono urged the two candidates in Wednesday's disputed presidential election to keep their supporters in check during what will be an agonising two-week wait for an official result.

Police were on alert on Thursday across the sprawling archipelago, the world's fourth-most populous nation, after both candidates claimed victory in the tightest election race in the country's history. The Election Commission is due to announce the official result on July 22.

Yudhoyono met Jakarta Governor Joko "Jokowi" Widodo and former special forces general Prabowo Subianto separately at his home outside Jakarta late on Wednesday night, telling both to ensure their supporters kept the peace. "(The president) asks both candidates' sides to show restraint, not to mobilise masses onto the streets to celebrate victory until the verdict of the Election Commission,' Yudhoyono tweeted late on Wednesday.

There were no reports of any major violence across the vast archipelago. Around 250,000 police officers stood on standby, authorities said.

Prabowo has criticised his rival for declaring victory based on quick counts of actual votes by private groups and which have proved accurate in past elections. He countered with his own victory declaration based on other, unnamed, quick counts.

Indonesia, Southeast Asia's biggest economy, was swept by violence in which hundreds of people were killed when strongman ruler Suharto was ousted in 1998 after over three decades in power. It has since made a slow transition to full democracy, with this only its third direct presidential election.

Indonesian financial markets surged on Thursday in the belief that the unassuming Jokowi, who is seen as a representative of the common man and the face of reform, had won.

His opponent Prabowo is seen as a last gasp of the old guard and his nationalist rhetoric and suggestions of a greater state role in the economy has worried many investors.

Jakarta stocks rose to a one-year high on expectations and the rupiah also strengthened against the dollar. "We expect investors (particularly foreign) to start pricing in a Jokowi win immediately and both bond and equity markets along with the rupiah should do well," said Jakarta-based brokerage Trimegah Securities in a research note.

GAINS MAY NOT BE SUSTAINABLE

The Jakarta Stock Exchange climbed more than 2 percent to an intraday high of 5,165.42 by 0234 GMT, the highest since May 30, 2013. The market is up nearly 20 percent so far this year.

The rupiah also rose, climbing to a seven-week high against the dollar at 11,520 despite the uncertainty. "It seems like the market will rise in the next couple of days, but it may not sustain the gain until there is an official result from the KPU," said Jeffrosenberg Tan, a director at Sinar Mas Asset Management, referring to Indonesia's election commission.

But the political limbo until the official result is announced will weigh on the market. "With both camps declaring victory, the market could still be held hostage by politics at least through July 22," said Harry Su, head of research at Bahana Securities in Jakarta.

The presidential race has been the dirtiest and most confrontational in a country which traditionally holds up the value of consensus politics. "Given the scale of the economic challenge confronting Indonesia's new president, and the country's domestic and external vulnerabilities, a divided nation is the worst possible outcome as far as the politics of economic reform are concerned," said Nicholas Spiro, managing director of Spiro Sovereign Strategy in an e-mail.

Foreign investors, who own almost 80 percent of the free floating Indonesian stock market in the influential MSCI index, have been buying, although their investments have slowed to a trickle in the past month.

Data from the Indonesia Stock Exchange showed that by Tuesday, foreign investors had invested a net 46.5 trillion rupiah ($4 billion) so far this year.

The central bank holds its monthly monetary policy meeting later on Thursday, and is expected to keep interest rates unchanged.

Some investors said Indonesia remained an attractive long-term investment despite the uncertainty.

Winston Sual, president director of Panin Asset Management, who has about 15 trillion rupiah ($1.29 billion) under management, said he was not overly concerned by the election dispute and would increase investment in the stock market.

Indonesia is heavily dependent on foreign portfolio flows to finance its huge current account deficit, and has had several bouts of capital outflows triggered by double-digit inflationary spikes and currency volatility.

Ari Pitoyo, chief investment officer at Eastspring Investment Indonesia, said his firm was ready to enter the market irrespective of who won. "We believe all business activities will resume and some volatility tends to give us a chance to invest," Pitoyo said.