Long before the Legislative and Presidential Election was held, predictions already signaled that the political year was not condusive to economic activities and now it was evident that the prediction was true indeed. Among the evident was realization of economic growth in Q I and Q II this year at 5.21% and %.12% respectively which was way below concensus of 5.5%.
It was not totally true that world’s economic slowdown was note fully restored. It was also not fully true that economic slowdown was due to monetary and fiscal policy which was deliberately adopted to slowdown economic growth. There was one monetary and fiscal factor which contributed direct effect to economy the Presidential election.
The legislative election on April 9 last had passed and hardly was there any political turbulence that followed. But the Presidential Election on July 9 last was different: one of the contestants rejected the election outcome and brought the case to the Constitutional Court who was supposed to settle the case on August 22, 2014 at the latest.
Now the electoral dispute session was underway at court and it induced negative sentiment in IHSG index and the BEI index which was closed to drop by 50.86points [1.00%] to the level of 5,058.2327 last Wednesday [6/8].
Such was reasonable because fear of marketplayers that the Constitutional Court Session would end up in undesirable outburst would be benefited by investors to sell premium shares. However the claim over possible cheating in the Presidential election last July had its impact on shares transactions.
The only thong was that the impact was not too significant because in spite of claims things was still safely running. Besides to look at internal economic condition, some sectors were not growing too well. Trade balance was still in deficit making shares unappealing to the market.
Stockmarket fluctuation in the past few days as indicated by IHSG being negative was due to combined global and regional influences. Today the market was responding to global incentives as well the case of election dispute at home.
Soon as the Constitutional Court verdict was coming near, the market would respond more spontaneously especially when the condition was safe it would bring positive sentiment to the market. However if the condition was in reserve such as mobilization of the masses the market would respond negatively. The market would keep fluctuation until the Court make their verdict.
The regional stockmarket condition which was not-so-good was one if the factors that caused IHSG to weaken. On the internal Side, Indonesia’s economic growth in Q II was also unimpressive, not to mention the political tension.
Generally speaking the domestic and global factor had their sentiment which tend to be negative was reason for investors to do profit taking. In America the Fed’s policy on credit interest would drive global funds to flow out from the emerging markets to America.
Not just portofolio investment, direct investment would also be affected by political turbulence. This was reflected in investment realization in Q I and Q II at Rp105 trillion and Rp115 trillion respectively. With direct investment targeted at Rp450 trillion, investment of much higher amount would be needed in Q III and Q IV.
Unfortunately in this Q III political situation was still heightening and it would be hard to expect investment in Q III and Q IV would reach the level of Q II. This was because investors tend to be reserved and wait for the Court’s final verdict on election dispute. Most probably realization of direct investment would soar up in Q IV.
From the above picture it was easy to conclude that the reaming 4 months of budget year 2014 political stability was the indispensable thing to be established to ensure security for political stability. Where world demand dropped, direct investment was the key solution to strengthen GDP.
To ensure political stability, it would be wise to permit security forces to take firm action to demonstrators to prevent violence and anarchy and teach the political elite to be orderly and elegant in their political moves.
They must be made to understand that anarchy in any shape would destroy national image and credibility in the eyes of the world including investors would be reluctant to invest in that country. (SS)
Business New - August 15, 2014