Monday, 7 April 2014


The Government was fully aware that to rely on Government expenditure and export to jack up economic growth was not an easy task. It would be more realistic if the they draw in capital inflow and drum up foreign capital to empower economic growth. Foreign capital inflow had been signaling increase over the past 3 years [2011-2013] and was still continuing this year.

Foreign capital which flowed in to Indonesia in the first quarter of 2014 soared up compared to 2013. From January to the first week of March 2014 foreign capital entering Indonesia was posted at Rp38 trillion. In 2013 it was only Rp28 trillion.

The Governor of BI Agus DW Martowardojo stated that the foreign capital entered Indonesia through transactions of state’s promissory notes and shares. The sizable foreign capital entering Indonesia proved growing global investor’s trust in Indonesia’s economy. Generally speaking the condition of Indonesia’s economy had been improving, especially with the application of Government’s strategies for 2013.

All through 2013 Indonesia had been the attention of global market, being associated with other developing countries which had weaknesses in being unable to tackle deficit in trade transaction, but now apparently Indonesia was able to reduce deficit.

BI’s and Government’s strategy in 2013 could strengthen the world’s confidence in Indonesia. Indonesia was prioritizing more on stabilizing economy although economic growth which was originally targeted at 6% had to be revised to 5.8%. Although growth rate was low, at least it was sustainable.

The optimism was also based on Rupiah bettered position and index of IHSG moving up. Through 2013, Rupiah value was depreciated by up to 20.56% but thankfully in 2014 it was appreciated by 6%. Index of capital market 2013 was corrected but in first quarter of 2014 it moved to as high as 4,900.

Still, it was necessary to observe the momentum of foreign capital inflow. Overflowing foreign capital was one of the uplifting factors to Rupiah, but the dak side of it was that importers might be tempted to import raw components and auxiliary materials in large quantity, which would again broaden ratio of Deficit in Current Transaction to GDP.

In the next three months, import of raw materials would increase as companies jack up production to anticipate increasing demand toward Idul Fitri festive day. Almost certainly deficit would widen.

And yet 2014 was the year that Indonesia needed high export badly, especially of the manufacturing commodities. Export uplifting was needed to lessen deficit in trading caused by oil importing. Target of export might not be met as strengthening of Rupiah would cause competitiveness for Indonesia’s manufacturing products to drop. Price of Indonesia’s exported products would increase in the global market when rupiah strengthened.

Entry of foreign capital in high quantity would not pose as problem if Indonesia’s export volume was high. The Government’s homework was to create an industrial structure which would strengthen competitiveness of manufacturing products without being sensitive to Rupiah fluctuation. This was the first notation to be observed so inflow of foreign capital could be under control.

The second notation was foreign capital of portofolio category. The Indonesia Security Exchange [BEI] noted that total net buy Transaction by foreigners at the stockmarket till March 17 2014 came to Rp22.1 trillion. Compare this with last year where foreign capital owners booked total net sell of Rp18.9 trillion.

Act to net buying by foreigners this year was seen since early January. Through January 2014, net buying by foreigners was posted at Rp3.2 trillion. The trend continued through February and March. In March, the value was higher. By March 17, foreign net buy came to Rp11.3 trillion.

It was noteworthy that when IHSG was closed to weaken by 2.4 points [0.05%] to the level of 4.876 foreign investors made sizable net buy, i.e. Rp2 trillion. The stormy inflow of foreign capital to the stockmarket was triggered by 3 factors :

Firstly, positive sentiment from declaration of Jakarta Governor Joko Widodo [Jokowi] to be candidate President 2014 which triggered the Jokowi effect at the moneymarket.

Secondly, economic stability at home which was well guarded based on harmonious combination of monetary and fiscal policy.

Thirdly, the settled BI rate at 7.5%. Macro economic stability at home was also responded positively by marketplayers especially foreign players. This time foreign players believe that Indonesia’s economy would see any slowdown as predicted.

In the political context, the market believed that politics was no mathematics where all people believed in the same thing. Anything could happen in a contest of political in the Legislative election on April 9, and battle among Presidential candidates on July 9, 2014; but market response to Jokowi’s appearance on the political stage as Presidential candidate of PDI-P had its own explanation.

During Session Two of shares transaction at BEI on Friday [14/3] the moment Puan Maharani Soekarnoputri, Chairwoman of the Electoral Victory Committee, read declaration of Megawati Soekarnoputri, Chairwoman of PDIP, the stockamarket screen board emited green light IHSG was closed at 4,878.64, soaring up by 3.2% against previous day.

Assignment of Jokowi as PDI-P was “good news” being awaited by the market since last year. All stockmarket analysts came up with the same prediction that if the elected President represented people’s aspiration prices of shares would skyrocket an the second quarter and furthermore. Although the election it self was not run yet, the Presidential Candidate expected to represent people’s aspiration was Jokowi.

The opinion was no wishful thinking, but was based on empiric survey by some independent survey agencies. Since last year when survey was run, the name Jokowi tend to soar up to high level. The same Jakarta’s Governor who had been in office for mere 1 ½ years defeated big names who since 2009 was predicted to succeed Susilo Bambang Yudhoyono who, by constitution, could not hold office for another period.

The market sentiment is people’s sentiment. When the people wanted Jokowi, the market followed. Negative sentiment would generate when people’s choice was not given the chance to compete. The market fully understood that people would be disappointed if the favorite candidate could not join the contest. People’s disappointment means negative sentiment to the market. Megawati’s announcement was responded with applause by the people as it was good news that generated positive sentiment to the market.

After ten years of SBY administration, people were looking for something new. The people expected there would be acceleration of growth and equal distribution of income. Jokowi’s modest appearance, pro-people, firm and persuative stance but gentle by approach, high integrity, and purely uncontaminated by business was rated as the right figure to meet people’s aspiration which by his rivals was rated as not the strong leader type, but was the candidate that people pin their hope on.

Perception of Jokowi was not formed by fiction, but track record. This ex-Surakarta mayor had remarkable achievement, as expected by the people. With his pro-people achievement, joblessness and poverty figure in Surakarta dropped. Modern business developed here but traditional markets was growing faster.

Social disparity, which was national issue was showing significant downturn. Through Healthy Card free medication service and Scholar Card free education system, the people were given access to free medication and free education. Jokowi had successfully relocated street hawkers without resistance.

By his social engineering concept, people who live in slum areas, restricted geen zones or bulldozedprone wet market were led to better and more decent location. He was the type of leader who relied more on negotiation and persuasion to convince people and counterparts.

There was no significant achievement that the people could see in the first one-had-a half year of Jokowi’s administration. Whoever the Governor Jakarta would never be free of traffic jam unless the automotive industry stopped their production. As with flood, a little patience was needed because it might take 3 to 5 years before flood controlling showed any fruits; but Jokowi’s actions to tackle the two problems seemed to be on the right track.

Flood and traffic jam could not be solved by the Jakarta Municipality alone. Around 70% of key solutions to overcome the two problems was in the hands of the Central Government, Jakarta’s neighboring provinces.

By promoting Jokowi to Central Government level, it would be easier to troubleshoot Jakarta problems. Moreover the people were expecting a ruler who concentrated effort on struggling for people’s interest, narrow down social gaps, and promote people’s welfare. A condition as such would generate positive sentiment to all business players.

Businesspeople would no longer hesitate to make business expansion and investors would not feel it necessary to take the wait and see stance before entering Indonesia. As leading indicator, high soaring IHSG was positive response to candidating of Jokowi. Today, total index soared up to 152.47 points and net buying was posted at Rp7.5 trillion.

Foreign capital inflow indicated high confidence of foreign investors in Indonesia’s future led by the new leader. Although anything could happen in politics, today the market acclaimed Jokowi the was the people welcomed him. Hopefully the picture would be positive factor which would drum up foreign capital of the real sector or portofolio type. (SS) 

Business New - March 26, 2014

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