TO PREVENT CAPITAL FLIGHT

            In situation where global economy was still unstable, it was most advisable for the Government to continue their commitment to create an economic climate which was conducive to investment. Indonesia was not alone in the effort to harness foreign capital inflows. Foreign investors were on the lookout for a good place to invest and Asian Governments were racing to draw them.

            Indonesia must strive hard to keep from being outsmarted by competing neighbors; what’s more to keep foreign investors, which were already operating here, from running away because they felt that Indonesia was not a prospective place to work in.

            It seems reasonable if some experts have some early waning to the Government of RI to be on the alert of any possible capital outflow this year because the global factor was today prone to generating negative sentiment to the local condition.

            The influencing global factors which might trigger capital outflow was among other the negative economic development in Europe and the USA, while the domestic factor was now at least after postponement of price increase of subsidized oil by the Government.

            As known, the plan of oil price increase had triggered street demonstrations that stormed the cities all over the country; the outburst stopped as the Parliament decided to postpone oil price increase under certain conditions.

            Still the Government must watch out the potential capital outflow if economic development in Europe and the USA turned unfavorable. Broadly speaking, investors would still go to emerging markets like Indonesia to invest their capital.

            If the Federal Reserve Bank, America’s Central Bank continued the policy of quantitative easing, it might drive foreign capital out of Indonesia. However capital outflow was predicted to be temporary. Broadly speaking, foreign capital would still floe in to Indonesia in spite of lessened amount due to global economic slowdown. In the event that Indonesia’s economic growth were corrected, investors might tend to be reserved.

            Indonesia’s elevated debt rating position to investment grade by Standars & Poor’s  after investment grade awarded by Fitch ratings and Moody’s Investors Service was predicted not to bring too great impact on capital inflow as investors had made their calculations. As indicator so far the percentage of foreign ownership of Indonesia’s state bonds was still stable at 30%.

            One thing was sure that capital outflow was not going to happen if the condition in Indonesia were safe and under control and economy grew steadily in the range of 6% - 6.5%. However, capital outflow might happen if Indonesia were off guard in maintaining political stability, security and well being of macro economy.

            Macro stability was under threat in case of over growing import of goods and services. The Government must also maintain deficit percentage of the State Budget (APBN) not to exceed 3% above GDP and inflation.

            It was most appropriate that the Government maintained coordination with Bank Indonesia to maintain stability of the bond market in the framework of Crisis Management Protocol (CMP). Every institution had their parameter to decide the right momentum in running market operations.

           Record of March 27 had it that foreign ownership was posted at Rp 225.17 trillion or 29.6% of total tradable bonds which amounted to Rp 760.22 trillion. The amount was a slight downturn against February 2012 which was posted at Rp 226.98 trillion or 30.17% of total tradable state bonds worth Rp 752.34 trillion.

         The great zest of foreign investors to enter the Indonesian stockmarket indicated that Indonesia was relatively more prospective compared to other ASEAN states, just to mention a few the Philippines, Cambodia and Vietnam. For that matter, amidst uproars that the Government restricted foreign ownership of SBN, it was advisable that the Government gave more priority to local investors.

            For further releases of SBN bonds, in fact the Government still had a strategic opportunity which might be as underlying transaction i.e. large scale infra structure projects within the structure of the Indonesia Economic Development Acceleration and Expansion Plan (MP3EI).

            At the moment there was growing optimism that IHSG index at the local stockmarket had the chance to reach 4,300 level this year and 4,500 by end of year. This optimism was basically visible at least from emitent’s performance which was well maintained amidst external pressures and Government’s plan to sell some of BUMN shares through Initial Public Offering (IPO).

            Normally sales of BUMN shares was highly capitalized so they had the potential to inject positive sentiment to the stockmaket. Generally BUMN shares were able to act as market mover because of their strong and also liquid capitalization.   


Business News - April 11, 2012