HAPPY LUNAR NEW YEAR 2014

IN SUPPORTING DOWNSTREAMIZATION INDUSTRY IN BORDER AREAS MUST BE DEVELOPED

To develop the industry, particularly in support of downstreamization, the birder region must also be developed as far as all the raw materials for the industry is available in the region concerned. As stated by Deputy Minister of Industry, Alex SW Retraubun, during his visit to Sebatik District, North Kalimantan, Thursday (January 1), if Indonesia does not attempt to utilize raw material, the benefits will slowly but surely be utilize raw material, the benefits will slowly but surely be utilized by Malaysia.

“From here we see a potential of raw materials such as seaweed, oil palm, and cocoa plants. Because the Indonesian nation should first seek to build semi-finished industry in the region. For example, seaweed. So here I am encouraging how people are started t be motivated to boost more supply of seaweed, meaning from the upstream industry sector.

The next production process starts  from the downstream sector with the construction of new plants. But with 1000 tons per month produced by Nunukan Regency, it was only 30% of the available potential. Therefore, the potential can still be optimized up to 3-fold. When that happens, it means that the efforts have been quite massive and will create people’s economy. It also includes increase in APBD (regional budget) to be allocated in seaweed, he told Business News.

With regard to the industry agenda, we look at Sebatik island, in the part which belongs to Malaysia, palm oil mill has been built with a capacity of 65 tons per hour. What was Malaysia’s intention in establishing industry there? They want to look for opportunities to utilize raw materials from Indonesia. Because Nunukan and Sebatik regions have a huge potential of oil palm trees. So here we see that Malaysia has better utilized the birder region compared to Indonesia.

The issue of gaps in the border region is very strong. That is why the government finally split the North Borneo Province to become the 34th province. Similarly, Sebatik District as one of the outer islands will soon serve as a city. This is all government effort to improve development touch, Alex added.

Meanwhile, about whether or not it is necessary to build industrial estates in Nunukan, besides that it is in accordance with the Law on Industry, and if later based on a feasibility study, the region is proven feasible to serve as an industrial area, the government will build an industrial are there. The government will also see that the economy of the region can become more easily driven. Because based on the law on industry, the government has been able to build industrial zones. Previously, there were more private sectors who build industrial estates.

In an official visit, among others, to West Sebatik region, we witnessed a variety of potential of marine fishery products that have begun to be processed, such as Ambalat anchovies and ebi (dried shrimp) which are still produced traditionally by the local community, and also a variety of processed products from the sea. Small and Medium Enterprise (SME) Center which is located not far from the Indonesian-Malaysian border region, presents various kinds of processed products of banana, which is one of the mainstays of the region, such as banana chips.

Formerly, Director General of Small and Medium Enterprises (SME) of the Ministry of Industry, Euis Saedah, stated that in support of eco fashion program, the Directorate General of Small and Medium Enterprises in collaboration with Muslim fashion designers were utilizing natural dyes from untapped materials. “I was ordered by one of the designers, so that seaweed waste is not disposed, because it can be reprocessed into natural dyes. In addition we are also currently examining various marine biotas that exist in various regions, to find out its potential to become the basis for natural dye for textiles and garments,” he told Business News. (E)  

Business News - January 22, 2014 

AEC MUST HAVE ENERGIZING IMPACT ON DOMESTIC SMAL BUSINESS

Toward implementation of ASEAN Economic Community [AEC] in 2015, Indonesian marketplayers were consolidating. With the beginning of free market era in Asean next year, opportunities were open wider for Indonesian businesspeople to market their products overseas. In spite of great challenges from the external, it was expected that AEC would stimulate domestic economic growth.

Upon entering the political year which was transitional the businessworld would feel the effect of national instability. Banking observer Jeffrey Wurangian stated that the legal political and security factor would bring significant impact on Indonesia’s macro economy. “Economic growth this year is expected to be positive. Indonesia’s trade balance is bettered before we join AEC next year,” Jeffrey disclosed to Business News [17/1].

Today the banking sector was focusing attention on credit from small-and-medium business [UKM]. A perfect moment for entrepreneurs building their business. To learn a lesson from 2008 crisis. This was the reason why helping KM was a trend to Indonesian banks. “In a situation where economy is difficult, credit for the UKM sector held less risk than credit for corporations” Jeffrey was quoted as saying.

The UMKM sector was constantly growing. Enterpereneurship was energizing the young generation. Regulations became important to ensure security for UMKM and clarify the rule-of-the-game and the consequences. “Day after day the UMKM sector was developing. The Government must be responsive enough to accommodate the trend and not to let UMKM being unprepared to the AEC in 2015.”

In a different location, Chairman of the Executive Board of the Indonesian Chinese Businesspeople Association Richard Tan stated that China’s economy could rely on ASEAN. China was more frequently running events especially expo which involved Asean. Some big projects like power plant, bridges, or even big dam like the Jatigede dam in Sumedang West Java was important for Indonesia-China relationship in investment. The Jatigede dam when completed would be the biggest dam in Southeast Asia. Electricity supply from the Water Powered Generator [PLTA] would be realized. “The project was once suspended, but now running again” Richard disclosed to Business News sometime ago.

The dam would hold water as much as 70%. The reservoir area had been well calculated by the project planner to fulfill ideal capacity. “One of the infra structure needed today is electricity. We can no longer rely on electricity supply from coal powered generators, solar powered, wind, thermal heat etc. China is one country who had successfully build electricity infra structure.” Richard said.

Perpit also saw increasing trend in Indonesia-China trade relationship. One of the events which was part of national agenda was CAEXPO [China-Asean Expo]. Many activities in investment and trading would promote China-Asean strategic partnership. In the past 10 years, China’s investments in Asean especially Indonesia had been growing, We must maintain this. I am also involved in nickel mining activities in East Indonesia. China was expecting mineral supply from Indonesia.”

Meanwhile Business News during a four day visit to Bangkok saw display banners and balihoo exposing AEC. Public activity centers like Udotany, Nong Khay Tailand were displaying banners and balihoo. The people of Thailand were highly reliant on tourism, so anti-Government demonstrations against Prime Minister Yingluck Shinawarta did not disturb Tourism activities. “The public sector and tourism remained’ sacred’. We are only run demonstrations, to urge PM Yingluck to step down at once. We are not anarchic or disturb foreign tourists activities” Witt, a demonstrator coordinator at Lumphini Park Bangkok disclosed to Business News [16/1]. (SS)

Business News - January 22, 2014

INDONESIA STILL DEPENDENT ON IMPORTED FOOD

The Government stated pressures from imported food increased in 2014, because the global food condition indicated recovery and was more competitive. The improved global condition was seen in increased world’s GDP from 2.1% to 2.8%. The growth was expected to happen in Indonesia’s trading counterparts among others the USA, Uni Europe, China, and India. Besides the world’s food reserves was also predicted to increase, around 1.4% for wheat and 10.1% for rice. The increase of world’s food reserves made the world more secure.

If global production increased, most probably price of food would go down. Meaning it was opportunity for importers to import food massively. Depurty Minister of Trade Bayu Krisnamurthi stated on Thursday [16/1] restriction of essential goods would still be Government’s homework this year. Moreover it was in line with growth of demand at home which was today no longer centered in big cities.

Bayu explained that the hardest task in trading for 2014 was to tame inflation. Such was because domestic economy was still the backbone of national economic growth. “We predict domestic consumption would grow between 7% - 19% with broad range including F&B, electronics, housing, cosmetics, garment, footwear etc.” Bayu concluded.

Due to hard challenge of controlling inflation, Bayu stated that various basic need had to be imported this year as domestic supply was still below demand. Import pressures of food was a serious challenge domestic agriculture. For that matter this year the Government planned to spur on production output to keep up worth demand. Bayu admitted he just had to adopt import policy to maintain price stability in the market. Such was his respond to criticism addressed to the Ministry of Trade who tend to choose to import food, which made the domestic market to be stormed by imported food.

He underscored that import was only exercised to stabilize prices. For example, price of garlic would be beyond control if the Government did not adopt importing policy. National garlic consumption in 2013 was 400,000 tons, yet national production was only 20,000 tons. The task of the Ministry of Trade, Bayu said, was to jack up food productivity as many agro products were low. According to Bayu, if the Government did not take to importing garlic, price of garlic might soar up to Rp 50.000.- per kg while inflation rate had broken through 8.3%.

Meanwhile the Indonesian Executive Director for Global Justice reza Damanik said that supposedly the Government could reduce dependency on importing of non oil-gas commodities especially food so trade balance could be improved. He said that the main cause of deficit in trade balance was import of oil gas products, but import of non oil-gas products was not less determinant. Therefore the setback could begin from dependency on import of non oil-gas products, especially food.

Data of the Ministry of Trade had it that since 2009-2012, Indonesia’s import of food posted increase up to 100.4% from USD 8.42 billion to USD 17.8 billion. The highest increase was posted mainly in coffee, tea and chili which jumped up by 425.12% from USD 62.1 million in 2009 to USD 326.1 million. Cereal increased by 146.6% from USD 1.5 billion to USD 3.7 billion. Besides import of sugar and sugar testis also increased from USD 704.6 million to USD 1.8 billion; the same was with seeds and cereals which increased from USD 826.9 million to become USD 1,491 million, flour became USD 645.7 against 2009 which was still around USD 353.9 million. (SS) 

Business News - January 22, 2014 

RUPIAH AND IHSG GAINNING STRENGTH AS EXTERNAL FACTOR TURN POSITIVE

The year 2014 held the potential of Rupiah strengthening while IHSG tend to elevate. The external factor was the contributing factor to progress beside the domestic factor which signaled positive indicator especially in terms of household consumption.

The IMF and World Bank signaled their optimism as US economy was recovering while Germany and France were just as fortunate and Japan managed to tame inflation to 0.7% last year against the targeted 2% and would predictably be attained by 2016. China was growing positively although still slightly below 8% - to be exact 7.7% last year.

The bettered external factor would uplift trade volume which generated positive impact on national producing exporter. Non oil-gas export was predicted to improve thanks to increasing global demand. All in all emitent of the plantation and mining sector might expect to have windfall from global economic improvement.

The moneymarket

USD again touched the Rp11,000 level after settling for quite a long time at Rp12,00.- level. Since early last week [ 13/1/2014] USD was traded at Rp11,830. USD stayed at Rp12,000 since December 12,2013 Meanwhile the Jakarta Interbank Spot Dollar Rate [JISDOR] issued by BI on December 12, 2013 was at the level of Rp12,005 per USD.

However, toward last week end the was a naïf forecaster who pessimistically predicted Rupiah would be losing strength against USD due to negative sentiment i.e. released positive US data in the form of NY State Empire Manufacturing Index.

With addition of MBA Mortgage application and report of Beige Book of the Fed there was more positive sentiment for USD and certainly made Asian currency, including Rupiah, had the potential to weaken. The same was with Euro which slightly slump due to release of increased inflation in Germany and downturn of Italy’s Balance of Trade.

On the contrary US economic recovery generated positive sentiment t the emerging countries since demand for goods from America would soar up to bring export-based forex income [DHE] to developing nations. In other words, dollars would pour in grater amount which increase forex liquidity and indirectly jack up Rupiah value.

In that case last week end [17/1] Rupiah should have been at the level of Rp 11,750.- Rp 1,850 with tendency to strengthen. Moreover during morning session, Rupiah at the spot market inched up against closing session on previous day. Rupiah strengthening occurred when USD was seen to weaken against most currencies in Asia Pacific.

USD sank against Yen after US Government data inflation in Consumer’s Price Index [CPI] was still above the 2% target of the Federal Reserve. The data supported The Fed’s plan to maintain bank interest at lowest level. Consumer’s Price Index grew by 0.3% in December 2013. While core inflation at CPI only inched up by 0.1% due to downturn record in medical commodities prices.

Governor of the Fed Ben Bernanke last Thursday [16/1/2014] said that the US Central Bank was well prepared to anticipate risk from their Tappering Off plan including the risk of high inflation and asset bubble. In his statement 2 weeks ago before ending his office in the Fed, Bernanke denied accusation that he was provoking inflation by adopting easy money policy in the pas 5 years. Bernanke led the nation through crisis since America’s Great Depression in the 1930’s among others by injecting enormous stimulus.

Bernanke’s also stated that the Fed did not believe that the shares and property market had been prosperous although last year both posted significant growth. The Fed was developing all instruments needed to manage bank interest, to tighten monetary policy even if balance of payment did not change or expand.

Bernanke’s statement was related to quantitative easing injection worth USD 85 billion for buying US bonds. This policy had suppressed US benchmark rate to extremely low level in the long run. Meaning, the Fed was running monetary policy normally to avoid inflation risk which was avoidable – or other similar problems. Certainly it was always possible for the Fed to be too late in increasing benchmark rate, but the fact was that now the Fed had many monetary instruments.

Bernanke stated that inflation was not his focus of attention day, considering that inflation and consumers price index were still settled at around 1.5% through 2013. About the opinion that there had been over inflation of assets, Bernanke stated that the Fed was sensitive to financial crisis, which in 2008 was triggered by bubble in property asset. However the Fed did not choose to do control, regulation, and micro prudential approach to ensure minimum risk.

To Bernanke, US economic growth had the strength to control inflation which minimized workers’ mass dismissal beside increasing consumer’s trust and brighten the growth prospect in early 2014. Low and stable inflation was good for US economy. Furthermore by February 1 next Bernanke would be succeeded by Janet Yellen, whose promotion had been approved by Parliament.

It seemed reasonable for analyst to remark that Rupiah was the “champion of losers” among falling currencies in Asia this year after sinking deep last year on account of weakening economic resilence and widening deficit which drew in USD. Rupiah was predicted to strengthen by 6.8% in 2014 to Rp11,400 per USD after weakening by 21% last year according to Bloomberg Rankings.

Societe Generale SA predicted Rupiah to step up to Rp10,250 by year end, much more than median estimate of 23 analysts surveyed by Bloomberg, i.e. Rp12,200 per USD. Among top ten economy in Asia, only China’s Yuan strengthened higher than Indonesia.

Indonesia’s Deficit in Current Transaction widened to make highest record in quarter II/2013 at 4.4% against GDP which crumbled Investors’ trust as the Fed announced execution of Tappering Off. Analyst state that Rupiah was undervalued at Rp12,000.- Trade balance was recently quite positive. Moreover Indonesia had better outlook against global growth which supposedly contribute to export recovery in second half of this year.

Governor of BI Agus Martowardojo last week stated that Rupiah would strengthen in the future against USD which was due to bettered Indonesia’s economic condition. BI was constantly stabilizing Rupiah value in accordance with national fundamental economy which supported economic adjustment the controlled way.

Betterment of Indonesia’s Balance of Payment[NPI] with lessened deficit in current transaction was supportive to Rupiah movement. Optimism of the central Bank was not related to the implementation of Law No.4/2014 and Government’s Regulation No. I/2014 on Prohibition of Exporting raw mineral ores. Evidently this regulation was well accepted by the market and the impact was strengthening of Rupiah.

The regulation to prohibit raw mineral ore issued by the Government was accepted as fair enough by holders of IUP permit. The result was that businesspeople accepted the proposal, thanks to clarity of rules and application of incentives and disincentives.

However, the impact to export prohibition for raw ore materials was downturn of export volume of raw ore materials in early 2014.this was because miner operators were starting to scheme up new business in compliance to the regulations, i.e. to build smelters. The effect was that forex income was slightly reduced.

Other elevating factors to Rupiah was marketplayers’ positive response to the release of increased interest rate of deposit insurance agencies [LPS] by 25 basic points to become 7.5% and news of increased forex reserves of ASEAN nations including Indonesia. Indonesia’s forex reserves per end of December 2013 reached USD 99.39 billion per USD. On the other hand the beginning of application of export prohibition of raw ore materials was not too negatively responded as there was dispensation from the Government for exporter companies who were committed to build smelters.

Since then, yield of SUN Promissory Notes or Rupiah especially Rupiah exchange rate based on Non Delivery Forward [NDF] of one month tenure continued to strengthen from Rp12,200.- to Rp11,950 per USD. So over the week Rupiah was predicted to move in the range of Rp11,750 – Rp11,950.- per USD thanks to improved market perception of Indonesia’s economy.

The Capital Market

After being closed negatively last Thursday [16/1] IHSG during initial session last Friday [17/1] was again struggling in the red zone. IHSG sank deep to below 4,400. IHSG by 16.47 points or 0.37% to the position of 4,396.02. Notably 66 shares went up, 81 went down, and 56 stagnated, while the total transaction value in this session was only Rp 438 billion. Over the last day last week [17/1] IHSG was predicted to be in the range of 4,380 – 4,440 with players lurking to take profit.

The news that the World Bank gave pessimistic evaluation on Indonesia’s economic growth and fluctuating Asian shares which were losing steam in spite of being closed strong, motivated marketplayers to do act of selling.

Supposedly IMF and World Bank’s estimate which was optimistic about the projection of global economy generate positive sentiment to domestic stockmarket. Demand for exported goods would increase which improved performance of exporter emitents. So positive projection of commodity prices especially CPO in this Wooden Horse Year encouraged some plam grower emitents to spur on expansion.

An example was Indo Agri Resources Ltd. a sister company of PT Indofood Sukses Makmur Tbk. [INDF] who planned to plant new plantations in plam concession zones 10,000 ha and 14,000 ha. New plantation was expected to expand existing plantations. So far total plantation area came to 270,509 ha. As planned most of the planting agenda would be executed this year.

Besides new plantations, Indofood Agri also was focusing effort on increasing CPO production output and chain of product supply. Factory expansion was to anticipate expansion of plantation areas in the future. Indofood Agri still had the opportunity to plant in their concession zone up to 80,000 ha or around one third of the planted area. The potential of land development also included sugarcane plantation area for sugar industry.

Meanwhile PT Provident Agro Tbk. [Palm] was analyzing financing strategy in the form of banking credit facility to finance some expansion plan this year such as development of CPO and refinancing of plantation in Bengkulu and South Sumatra.

The mining industry sector had better prospect year because the Minerba Lae only prohibited export of raw materials, while export of coal was still permitted. All in all coal producer emitent ha better prospect this year in line with China’s economic recovery as the biggest importer of coal from Indonesia.

Economic recovery in the USA, Europe and Japan also generated positive sentiment to non oil-gas exporters. Demand for garments, textile and Textile Products [TPT] and footwear was constantly growing especially to the USA and Japan. The construction sector was predicted to improve in line with increasing demand, most likely to support infra structure building of buildings, airports, bridges and toll roads.

BI’s benchmark rate which settled at the 7.5% level also generated positive sentiment to the stockmarket. This would stimulate companies to sell shares through IPO. So it seemed natural if this week IHSG strengthen in the range of 4,390 – 4,460. (SS) 

Business News - January 22, 2014