Monday, 18 July 2016


The Government rated that the Economy Policy Package released was not effective enough to stabilize economy. For that matter the Government would release economy package Chapter III to complement the previous package.

President Joko Widodo stated that Phase 3 Economic Policy Package would be focused on restoring Economy for the short term whereby to bring result in notably short time. Today incentives were being prepared for the people so their purchasing power would increased.

Besides labor-intensive projects would be open. The objective was to maintain people’s purchasing power. To finance the projects, the Government would increase use of fund for infra-structure development at the Ministry of Public works and Public Housing and from the Rural Fund.

Lastly, PERTAMINA was asked to re-evaluate price if oil. Hopefully there was still room for PERTAMINA to lower BBM price although only slightly. All Government’s effort was being awaited for by the Government. Unlike Deregulation Package Phase 1, marketplayers were optimistic about Chapter III of package as it seemed more promising to investors.

As predicted, the National Stimulus Package Chapter 3 posed as “thirst quencher” amidst abnormal economic climate. The market responded positively to the Deregulation Package announced on Tuesday (29/9) last. Moreover BI had launched continuation of the package per September 9 last to stabilize Rupiah through Chapter Two of Policy Package.

During spot session on Wednesday (30/9) Rupiah was closed at Rp.14,653 per USD, strengthening by 38 points (0.26%) of Closing session on Tuesday (29/9) at Rp.14,690 per USD. This way different from the time when the market responded to September I Package last. At that time Rupiah weakened by 63 points to become Rp.14,307 per USD.

Index of IHSG was also closed to strengthen by 45 points to 4,23.9 after being opened at 4,189.4. the sectors starting to enter the green zone led by finance & banking sectors strengthened by 2,46%. On the country the manufacturing sector was still at the red zone.

Beside positive sentiment of September Package II other positive sentiment was from window dressing done in Q III for next month which was responded quite positively by the market.

Strengthening of Rupiah was on account of BI’s role to calm the market, Beside making intervention at the spot market, BI also made intervention at the forward market to balance up supply and demand.

About tax incentive draw forex-from-export (DHE), BI estimated envisage the potential of capital inflow to forex reserves might come to Rp.1 billion per month. Although the policy was regarded as appropriate for strengthening Rupiah, not all exporters choosed to deposit their fund at home. Local businesspeople preferred to make financial transaction abroad was because loan from abroad was more attractive. The Government was also considering to offer Tax Amnesty.

The Economy Policy Package II was focused more on accelerating investments and facilitating tax exemptions. The Coordinating Minister of Economy Darmin Nasution said that investors who intended to build factories at the Industrial procedure which lasted only around 3 hours.

The environmental permit was already given to the industrial complex so applicant needed not apply for it. Hence the applicants could obtain permit faster, only 3 hours.

The investment permit which could be completed in 3 hours included Principle Permit, Company’s Deed and Taxpayers ID Number (NPWP). Investments to be permit was worth at least Rp.100 billion which accommodated 1,000 Indonesian workers. The Industrial complex already had Environmental Impact Analysis (AMDAL) but investors must still build their water treatment system.

By applying permit which lasted only for 3 hours, the investors could choose the industrial location permit and immediately plan and build the factory. The Government also planned to draw exporter’s forex reserves which was today parked in overseas banks. For that matter Government offered tax exemptions for foreign currency deposit as much as 0%.

Today the Deposit Tax (DHE) imposed on money deposited in national banks came to 20%. With issuance of Economy Package Phase II, the amount was now axed. The precentage of deposit tax was as follow: 1 moth deposit 10% tax, 3 moths 7,5%; 6 months 2.5% and above 6 months 0%.

In Rupiah, the size of tax was as follows: 2 month deposit 7,5% tax; 3 month 5%; 6 month 0%. It was expected that exporters exporting nature based commodities would deposit their money in domestic banks. Report to BI was mandatory, tax cuts would be given only to those who already reported.

Not being less responsive, BI announced their policy package to support the Government in sustaining macro-stability. BI set 3 objectives to it, i.e. to stabilize Rupiah value, to strengthen management of Rupiah liquidity, and to manage supply-demand of demand for foreign currency.

To maintain stability of currency exchange rate, BI would make forward market intervention beside maintain balance of the spot market. To objective was to increase supply of foreign currency at the security exchange. Intervention could be done bilaterally or by auction as needed.

To maintain Rupiah liquidity, BI would release BI certificate Bond (SDBI) of 3 month tenure and reverse repo over SBN state bond of 2 weeks repo. Thereby BI could expect to minimize the risk of excessive Rupiah liquidity, especially in activities sensitive to pressure on Rupiah.

Release of 3 moth SDBI and 2 week RRSBDN would be done by done by auction and to be adjusted to the condition of liquidity. To manage supply and demand of foreign currency, some measures had been taken:

Firstly, by managing supply-demand at the forward market by way of enhancing forward transaction and sales of foreign currency or Rupiah and to underscore buying of foreign currency or Rupiah.

Secondly by issuing Bank Indonesia bond (SBBI) in forex reserve. Issuance of SBBI would support deepening of the moneymarket especially foreign exchange.

Thirdly, lowering of holding period of SBI from one month to one week to enable foreign capital to enter.

Fourthly to give incentives through reduction of deposit interest taxes to exporters who deposited forex-from-export in domestic banks. The Government run this policy in collaboration with BI.

Fifthly and lastly to enhance transparence and increase information on use of forex reserves was by enhancing report on traffic of foreign exchange.

The Government and BI’s effort was worthy of appreciation. It was right indeed for the Government to inject positive sentiment to the market to build marketplayers’s trust and calm the panicked market.

It was advisable for the Government to run Economic Policy Package Chapter I and II to generate direct impact on the real sector.

The Moneymarket

Bloomberg Dollar Index disclosed that during opening last week end (2/10) Rupiah weakened by 9 points or 0.06% to Rp.14,700 per USD.

Amidst the still adverse global economic condition, USD seemed to be the only currency regarded by marketplayers as safe haven. External sentiments seemed to be the obstacle to Rupiah to be appreciated once more.

China’s manufacturing data which was downturning and their economic projection which was still slowing down this year posed as sentiment to Rupiah. At home, Indonesia’s economy which was still slowing down posed as extra-pressures on Rupiah, while some business sectors were not performing well like mining and manufacturing.

The economic Policy Package launched by the Government and BI was predicted to show their impact on the middle and long term so they were nit responded well by the market. The positive sentiment and economic data released by BPS that there would be deflation of 0.05% in September was also not responded by the market.

Such was already visible in transaction on Thursday (1/10) when Rupiah strengthened to Rp.14,654 per USD against the previous position at Rp.14,657 per USD. Previously Rupiah happened to touch Rp.14,800 per USD, the lowest level since 1998.

As from now on Rupiah’s destiny would depend on the positive sentiment from Economic Policy Package Chapter I and II as well as BI’s policy. The Ministry of Finance contributed positive sentiment to the market by saying that budget absorption had come to 60% and was on the way up higher in the near future.

All the Government’s and BI’s effort would correct the predictions of some investors at the moneymarket that Rupiah would nose dive to the position of Rp.15,000.- and lower. However the Forex-re-serve-from-export policy it was believed that liquidity of USD at the domestic market would be higher and supply of USD would be abundant.

Today BI was constantly chasing exporters’ money not being transferred to domestic banks. If exporters refused to pay fine, the Monetary Authority threatened they would blockade all company’s export by coordinating with the Customs Dept. if the company was disobedient, BI would put administrative sanction in the form of 0.5% fine of nominal DHE not received or Rp100 million at the most.

By the above picture Rupiah was predicted to be closed in the range of Rp14,600 – Rp14,650 per USD with tendency to strengthen. This week Rupiah was still continuing strengthening in the range of Rp14,500 – Rp14,600 per USD this projection was inclusive of the probability of the Fed increasing FFR.

The Capital Market

Last Thursday (1/10) IHSG index was up by 30.1 points thanks to strengthening of commodity based shares. Domestic investors were chasing shares aggressively. To gain session IHSDG inched up by 7.502 points (0.18%) to the level of 4,231.410. Foreign investors used the momentum for profit taking.

Some investors responded positively to BPS data which announced that in September 2015 there was deflation of 0.05%. Meanwhile inflation of August-September 2015 was accumulatively 2.24%.

Finally during closing of Session I IHSG soared up by 35.728 points (0.85%) to the level of 4,259.636 driven by selective buying By domestic investors. Nearly all sectoral index turned green. Act of buying by domestic investors heightened until closing session.

On Thursday (1/10) IHSG closed session to inch up by 30.968 points (0.73%) to 4,254,876. Meanwhile index of LQ 45 was closed to increase by 6.793 points (0.96%) to the level of 711.769. this afternoon foreign investors posted foreign net sell of Rp167.155 billion in all markets.

Trading was running moderately with 255,829 transaction frequency at the volume of 5.414 billion shares worth Rp4.63 trillion. 160 shares went up, 103 shares went down, and 83 shares stagnated.

In other countries: China’s stockmarket and Hong Kong was closed in commemoration of independence day. Regional stockmarkets stayed strong. Index of Nikkei 225 up by 334.27 points (1.92%) to 17,7222.42. Index of Straits Times rose by 12.25 points (0.44%) to the level of 2,803.14.

Wall street was also closed to inch up during transaction on Thursday (1/10). Only index of Dow Jones inched down by 0.08%. investors were waiting for report of monthly labor and also report of Q III of companies. Through the sessions the curve line moved up and down.

US employment data could serve as clue to investors whether or not US economy would justify the Fed to increase this month. Index of Dow Jones inched down by 12,69 points (0.08%) to 16,272.01. Index of S&P 500 increased by 3,7 points (0.2%) to 1.923.82. In of Nasdaq rose by 6.92 points (0.15%) to 4,627.08%.

Last week end (2/10) IHSG strengthened to around 4,275 – 4,325 being sustained by positive domestic economic data, one of them was BPS’s data on inflation at 0,05%. With such betterment BI’s data on inflation target of 4% + 1% in 2015 would most likely be attained. This week IHSG was still continuing strengthening in the range of 4.325 – 4.375 in line positive response of marketplayers to the Economic Policy Package.

Moreover IHSG stood a chance to once again to strengthen in the medium and long term. Not to be ignored was the plan of BPJS Labor (ex Jamsostek) which was reported to increase investment portion at the stockmarket at 12% to 18%.

According to BPJS Labor, now was the time to enter the stockmarket as they were undervalued. BPJS Labor was today managing fund of around Rp200 trillion. Today BUMN investment at the stockmarket had come to Rp40 trillion. The Ministry of Energy changed the policy to help jack up IHSG.

The Ministry of Energy and Mineral Resources had a discourse to change policy for the mining and industry sector. The change was to create an investment climate which was conducive to growth. The change would be at legal and Regulation stage.

In this case Law No.4/2009 on Mineral and Coal was included in National Legislation Program 2015 and PP No 77/2014 on The Third Change of Mineral and Coal Mining had been revised and now in the process of discussion.

According to the Ministry of Energy PP No. 77/2014 was not sensible. In that Regulation, Miners could only apply for extension of contract or change their business status at least two years before the contract expired. Investment in mineral and coal mining needed vast amount of capital so they needed long preparation and feasibility study. Such rules was not sensible, now the Government whished to make things sensible.

While revising the PP, the Government would re-evaluate the Minerba Law. Some points to be reviewed was application for contract extension which was to be specified further, and also divestation to the Government. For the time being, to prevent violations the Government could propose a Regulation as Substitute to Law (PERPU) for legal assurance to investors.

The Ministry of Energy had also revised policies, i.e. as per mid-year of 2015 the number of required permits had been axed from 62 to 18 permits 11 of which was passed on to the Coordinating Board of investment (BKPM).

Since January 2015 permit in the electricity and mining sector had been put under the One Stop Service system at BKPM. For the oil gas sector, as per October 1 2015 there were 12 permits which were put under BKPM. At that time the energy sector permit were all under BKPM.

The Government would not issue permit to export raw materials if there was no commitment form the company to build smelters. In the Minerba Law which was today effective, smelters needed not to be built by every company, the companies could build smelters collectively on joint venture basis.

By July 2015 last, 97 permit holders had made progress of 5% at feasibility study stage; 12 permit holders had accomplished 6% - 10% (environmental impact analysis), 18 permit holders were already at initial construction stage, 18 permit holders had their smelter construction underway, 9 permit holders had their smelter building near completion and 28 permit holders had arrived at commissioning stage.

The Government would allow tax holiday or tax allowance and tax free facilities for import of capital goods. The Government would also exempt Value Added tax for gold buying at home to motivate permit holders build smelters at home.

Downstream had been a strengthening topic lately. The Government had extended deadline for downstreaming in the nature sector to 2017. However, some circles urged that 2017 should not be absolute deadline.

Businesspeople had limited financing capability amidst adverse global economic condition. Moreover minery goods were now priced low at the global market so miners had to recalculate their business. Perhaps Government’s policy in the minerba sector should be the attention of investors at the stockmarket. (SS)

Business News - October 7, 2015

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