TO REVIEW INTERNATIONAL SUPPORT TO NEW GOVERNMENT

The Legislative and Presidential elections were over. The presidential election on July 9, 2014 had the result already announced, although the loser candidate refused to accept defeat and protested the Electoral Commission [KPU].

Joko Widodo – Jusuf Kalla team had been declared as elected President defeating Prabowo Subianto-Hatta Rajasa. For the first time ever in history, Presidential election in Indonesia was only participated by two candidate pairs and Jokowi-JK won thinly by around 8 million votes.

Noteworthy was Jokowi’s victory speech which underscored the spirit of reconciliation for Indonesia’s unity. Family he said: “Let’s forget number one, let’s forget number two now there is only Indonesia, there-finger salutation for national unity”

Noteworthy was the statement of Dahlan Iskan, the Ministry of BUMN thst there was no time for the next President to sit on his laurels. The problems to be faced were really complex and must be tackled at once. No procrastinations! Public participation through the campaign period must be maintained for the next 5 years.

Jokowi-JK had strong social asset in the form of public support to build Indonesia. There were many virtuous things in the process of election, the most notable being tolerance of the Indonesian people in accepting the election outcome. The winner was not over exited and the loser did not lose control.

Beside the social asset at home, Jokowi-JK also had international support. World leaders congratulated him for being elected President, among others US President Barrack Obama, Australian Prime Minister Tony Abbott, Singapore’s Prime Minister Lee Husein Loong, Malaysia’s Prime Minister Najib Razak. In international diplomacy congratulatory messages were more than just lip service.

With international relationship as frame of reference, congratulatory expression was something very natural but within a broader context, world leaders responses could be rated world recognition of the process of democracy development in Indonesia. All the uproars of political rethorics through the campaign rounds had drawn the word’s attention. Some international monitoring agencies had been closely watching the debate process and certainly not without reason.

Indonesia is, by population, the third biggest democratic nation in the world. The presidential election was a transition of power through democratic way which would testify Indonesia’s maturity in running democracy. The world would see Indonesia’s changing face after the election while Indonesia market was important to the world.

The warm response from the international communities reminded us of similar occurrence in the world such as when Narendra Modi won the election as India’s Prime Minister last May, or when Barrack Obama was elected as president in 2008. The world’s recognition underscored the winners’ importance.

The world’s attention was characterized by spotlight of the international mass media who commented that Jokowi’s meeting had not been an easy victory since in the past Indonesian leaders were always from the political elites or the military. By positive thinking, Indonesia should see the world’s attention as a universal expectation of Indonesia’s role in the global system whether in the aspects of economy, security, or international politics.

The universal expectations had two facades. On the one facades, Indonesia’s new leader was believed to act differently in running international diplomacy but still constructive. The focus was still prioritizing national interest than foreign interest. The best response to those international remarks was to build international relationship based on national interest.

Now the change was open for the Government of RI to play better strategic role in the international forum by responding to some world’s leader who acclaimed Jokowi’s victory as Indonesia’s next President for the 2014 – 2019 period. The international support served as lubricant for the next government to foster bilateral and multilateral relationship to promote trading.

The support strengthened Indonesia’s strategic position in regional and international organizations where Indonesia was member, such as the World Bank, Asia Development Bank, International monetary Fund, the Islamic Development Bank, ASEAN and APEC. (SS)

Business New - August 8, 2014

TO KEEP OVERSEAS DEBT UNDER CONTROL

Indonesia’s overseas debt [ULN] posted increase in May 2014 which was due to high debt of the private sector. BI noted that ULN in May grew by 9.7% year-on-year to be come USD 283.7 billion.

ULN annual growth in May 2014 was posted as higher compared to growth in April 2014 at 7.7%. ULN kept on growing since December 2013. Growth was in 2 sectors, i.e. public and private.

Public overseas debt in May grew by 4.1% [y o y] to become USD 132.2 billion. In the pervious month Public ULN only grew by 2.2% [y o y]. The increase was account of bonds issued by the Government. Investors’ interest in State’s SUN bind could increase Indonesia’s overseas debt in the public sector. Without the government having to issue new SUN, public ULN could increase if they bought bond at the secondary market from domestic investors.

Broadly speaking private ULN could increase faster than public ULN. BI noted that private ULN in May grew by 15.2% [ y o y ] to become USD 151.5 billion. In the previous month private ULN posted growth of 13.2% [ y o y ]. Increase of private ULN was among others because some BUMN corporate issued global bond.

Sector wise, growth of private ULN was also driven by ULN growth in the financial industry sector, electricity, gas, and clean water. ULN growth of the financial sector was 21.2% [ y o y ], this figure was higher than the previous month at 13.2% [ y o y ], The point was that there was increased ULN in the sectors grew by 9.8% and in April grew by 1.8%. Growth of debt reflected business activities business activities in those sectors.

By span of time, long term and short term ULN were increasing. Long term ULN grew by 10.1% in May to become USD 234 billion, higher than the previous month at 9.9%. Long term ULN was dominated by the public sector, i.e. 94.5% of total public ULN, while short term ULN grew by 2.3% [ y o y ]. This short term ULN were mostly used for financing import of oil. So short term ULN was noteworthy because it was of high risk. However growth of ULN till last May was still health enough for sustaining the external sector although it must be watched on.

In tune with BI, the Government was beginning to worry about Indonesia’s debt Service Ratio which kept increasing ULN debt of the private sector, the expanding ratio was due to Government policy which often delay payment to Pertamina at year end.

DSR could be described as ratio of total credit installment to state’s income. Only trouble was, so far there had not been any regulation issued by the Government or the been Central Bank to prohibit private companies to borrow from abroad. So far the Government had been quite aware of the increasing DSR at home.

In line with increasing foreign debt, now there is rule for private companies to report their overseas debt, whereby the Government and BI could know the debt posture of the private sector. By this obligation, it was expected that on due date the borrowers would be ready to pay. Therefore it was important to adopt hedging by private corporations.

Although there was no regulation which forbade private companies to borrow money abroad, BI must constantly monitor the development of overseas debt. Moreover increase of foreign debt was due to loan-to deposit ratio of Indonesia banks which had come to 94%. BI had limited LDR at maximum 92% so liquidity of Indonesian banks to extend credit to companies had its limit.

So it was the right step to monitor the development of private overseas debt. It was hard indeed to ask domestic corporations not to borrow money from abroad, since it was extremely costly to borrow from local resources. With inflation as high, and that was the reason why private corporations tend to borrow from abroad.

It came as no surprise that foreign banks were getting more popular among national multi-financing customers. Evidently in May 2014 last the amount of multi-financing credit extended by foreign banks increased by 32.61% against same period last year. BI data had it that multi-financing obtained from foreign banks came to Rp92.48 trillion in the first 5 month this year. Compare this with that of 2013 at only Rp69.74 trillion.

Compare this with increase of lending by local banks to multi-financing agencies which was only 8.19%. By end of May 2014, total credit extended by local banks to multi-financing agencies was posted at Rp133.49 trillion, higher than that of May 2013 at only Rp123.38 trillion. Multi-financing agencies tend to choose overseas banks because the swap rate to Rupiah was preferable, by early year the swap was competitive and the rate was good.

On the other hand, financing from local banks was getting more costly, moreover with the increasing bank interest at home which increased multi financing burden, while it was hard for multi-financing agencies to increase interest as competition was high.

Adira Finance was one of the multi-financing agencies who obtained credit from a foreign bank. The amount was USD 300 million with tenure of 3 years. The fund obtained in April was from Japan, India, and Taiwan. Meanwhile Radana Finance planned to borrow money from overseas banks in Semester 2. This year, Radana finance needed fund of Rp 1.8 trillion. Apparently the portion of syndication by overseas banks was bigger compared to medium Term Notes [MTN].

Meanwhile Astra Sedaya Finance [AAF] claimed they did not only rely on overseas credit; AAF also considered other option for financing resources like bonds and overseas borrowing. Last April, total AAF credit was USD 670 million obtained from 30 banks including overseas credit was still in the state of good health, safe and productive. This was perhaps extra homework for the next Government. (SS) 

Business New - August 6, 2014

ELECTION OUTCOME BREEZE OUT HOPE TO RUPIAH AS IHSG STRENGTHEN

Final outcome of the Presidential election announced by the Electoral Commission [KPU] on July 22, 2014 could breese out hope to the domestic moneymarket. The emergence of Joko Widodo – Jusuf Kalla as President and Vice President for 2014 – 2019 period might promise good future.

Clarification of the electoral outcome would at least lead to certainty of political course in Indonesia. This was assuming that protest of the Prabowo Subianto – Hatta Rajasa losing candidates who planned to bring the case to the Constitutional Court by July 25 2014 at the latest was ignored. Whatever steps taken by losing team political or legal market players were sure the election process had run will.

So the market confusion that happened last Tuesday afternoon would nor last long. The market was still certain that the Jokowi-JK would lead the nation well till the end of their office. What was now being the market’s concern was the outlook of the cabinet, especially in case of the ministers of economy, finance, industry, BUIM, agriculture, and trading.

If all marketplayers’ expectations were accommodated by the Jokowi-JK team, Rupiah stand a change to be appreciated to the level of Rp11,000.- Rp11,400.- per USD till end of year, while IHSG index at BRI might move up to 5,500 till end of year.

The Moneymarket At the spotmarket last Thursday [24/7] Rupiah weakened by 0.17% to Rp11,528 per USD. Previously on Wednesday [23/7] Rupiah strengthen by 0.85 points to become Rp11,507 per USD. The euphoria of electoral outcome managed to uplift Rupiah position amidst up going of USD index.

Data of increasing mortgage sales in the USA contributed to further strengthening of USD index. Inflation rate which resisted at above 2% annually plus tension in Ukraina which was far from over contributed to strengthening of USD. Meanwhile Euro sank to 1.34 per USD in tandem with Yield US Treasury of 10 years tenure fell to 2.46%

Euphoria over electoral outcome would lead Rupiah to strengthen notably through the coming weeks. Positive sentiment which prevailed to end of year still considered national macro-economy especially development of deficit in current transaction and inflation. After the election Rupiah tend to better in the range of Rp11,800 per USD moving toward Rp11,500 per USD.

With support of favorable political-economical condition, Rupiah was believed to stabilized at around Rp11,500 – Rp11,600 per USD and it means a good star for post Lebaran week on August 4, 2014 next at around Rp11,450 – Rp11,550.- per USD. Assuming to ignore the global discourse of using China’s Renmimbi as international currency.

It was only very reasonable to use Renmimbi as global currency, but a process of evolvement would be necessary for such. Now China was beginning to expose their currency to the world, were now beginning to be used as medium of payment. When Yuan was one of the leading currencies of the world, the impact would be positive because economic players would not rely of one single currency and risk would be minimized.

However, it might take around 10 to 20 years before Yuan could be used as International currency. The role would gradually increase by percentage. Analysts also rated that the potential of Yuan edging aside the role of USD was high, considering China’s great trading volume.

However Yuan was not ready enough to replace USD for the short run, considering the so many homework to be done. For example, the forex reserve management system in China was still controlled by the local financial authorities while money liquidity was still low in the market.

Although China’s fundamental economy was strong, inflation was also high, even above that of the average developed countries. High inflation would automatically affect currency value, which means higher risk of weakening. So what China had to observe was inflation level, before their currency could be used by the global market. At the moment China was still concentrating on trading and supposedly from the fundamental economy there should be portion for investment so the economy could be sustainable.

For information, HSBC survey concluded that in the future Yuan stands a chance to prevail in world’s economy and edge USD aside. The survey unveiled there were 11 countries like France and Taiwan where companies quite their transactions in Yuan.

Survey was made on 1,304 companies of 11 countries having business relations with China, namely China, Hong Kong, Australia, England, Germany, France, Uni Arab Emirates, Canada, and USA.

It was noteworthy how BI predicated Yuan to be an International currency following USD. The step not was easy, as there were consequences to be borne by China. The same was set forth by Finance Minister Chatib Basri that if Yuan wished to be a global currency, it should be ready to be kept by other countries, such was the precondition.

The wish was not without risk. The precondition was that China’s balance of payment must not be deficit proof. If import was trigger than export, it means Yuan was kept by other countries, but if the condition was otherwise other countries would not keep Yuan. The implication was that China must be willing to be a country without deficit.

Other condition was that Yuan must have a sound underlying fundamental without external interference, so Yuan could flow in and out easily. Naturally if Yuan officially became a world currency, the impact would not be too significant on Indonesia although trade volume between Indonesia and China was significant.

The Capital Market

Index of IHSG at BEI continued strengthening last Wednesday [13/7] following regional stockmarket trends. IHSG was overbought but investors were still hunting shares. During pre-opening session, IHSG strengthened by 16.768 points [0.33%] to the level of 5,109.998 while index of LQ 45 rose by 4.388 points [0.56%] to the level of 877.731. Strengthening signal continued during transaction last Thursday [24/7] when IHSG was opened to strengthen by 20.227 points [0.40%] to the level of 5,113.452. Index of LQ45 was open to grow by 5.339 points [0.61%] to the level of 878.664. Buying spree was in all sectors; commodity and infra were investors’ target.

After announcement of electoral outcome by the Election Commision [KPU] on July 22, 2014 last, IHSG was constantly energizing. In the afternoon session, IHSG was under correction when the losing contestant suddeny walked out of the vote counting process. Somehow the next day IHSG moved up again, in tandem with shares at Wall Street which ended strong. Index of S&P 500 scored new record due to upjupm of apple Inc shares.

Regional stockmarkets strengthened simultaneously after having positive sentiment at Wall Street stockmarket. Index of Nekkei 225 inched up by 20.92 points [0.14%] to the level of 15,349.48 Index of Hang Seng strengthened by 76.52 points [0.29%] to the level of 2,084.54. Index of Straits Times increased by 6.45 points [0.19%] to the level of 3,347.15.

At regional level, most of the stockmarkets in the Asia Pacific region ended strong, following Wall Street which ended positively as investors no longer worried about political crisis in Ukraina. Europe’s stockmarket soared up to follow Asia. Bettered corporation performance served as positive sentiment to Europe’s stockmarket.

Stoxx Europe 600 Index inched up by 0.2% to become 343.25. This Europe stockmarket reference increased by 1.3% supported by emitent’s performance. For comparison. Asian stockmarket represented by MCSI Asia Pacific inched up by 0.4%. 16 stoxx 600 companies reported performance including Mercedez-Benz Daimler AG, producer of Glaxo Smith Kline Plc.

Shares of Daimler increased by 2.2% after reporting profit-before-tax and tax amounting to € 2.46 bullion. Azko Nobel, the biggest paint producer in Europe also elevated by 4.1% supported by profit which increased by 10%. Last Wednesday [23/7] Europe’s stockmarket restricted Russia’s access to the stockmarket in line eith the process of evacuation of victims of the fallen MH 17 aircraftt in Ukraina conflict zone. Mean while the Sydney stockmarket inched up by 0.6% or 33.41 points to be closed at 5,576,7

At the local stockmarket, noteworthy was the increasing trend of agricultural sector and mining which were the fastest growing zone. Increase in the two sectors were basically technical rebound after previously the two sectors posted notable price downturn. So far there was no macro sentiment strong enough to set propower pricing.

Only thing was that investors must observe development in the agro-sector which was subject to sentiment from the El Nino storm might disturb distribution of CPO so the potential to go up. But it turned out that El Nino was not as bad as predicated so price of CPO was reluctant to move up. Shares of other sectors descended reasonably: aneka industry [-0.21%] and finance [-0.03%].

This year end, positive sentiment would come from electoral outcome announced by the Electoral Commission [KPU]. On the other hand foreign capital was predicated to flow in as the economic climate turned more condusive to investment since it was known who the next President for the 2014 – 2019 would be.

Apparently IHSG during closing session this Friday [25/7] would strengthen in the range of 5,150 – 5,200 although most of the marketplayers were on holiday or were on hometown rush [mudik] for Idul Fitri. During opening session on August 4, 2014 IHSG stand a chance to strengthen to around 5,200 – 5,250.

Investors’ zest would bloom if good news at home kept comforting the market since the election outcome was announced. Some emitents were reckoned to take corporate action which injected positive sentiment to the market. (SS)

Business New - August 6, 2014

JULY 2014 INFLATION AT 0.93 PERCENT

The development of commodity price, in general, in July 2014 showed an increase. Based on the monitoring results of the Central Bureau of Statistics (BPS) in 82 cities, in July 2014 there was an inflation of 0.93 per cent, or an increase of Consumer Price Index (CPI) from 112.01 in June 2014 to 113.05 in July 2014. Inflation rate by calendar year (January to July) 2014 is 2.94 percent and inflation rate year-on-year (July 2014 to July 2013) is 4.53 percent.

Inflation occurred because of price increase as shown by the increase of indexes of all expenditure groups, namely: foodstuffs 1.94 percent; processed foods, beverages, cigarettes, and tobacco 1.00 percent; housing, water, electricity, gas, and fuel 0.45 percent; clothing group 0.85 percent; health group 0.39 percent; education, recreation, and sports 0.45 percent; and transportation, communication, and financial services 0.88 percent.

Some commodities whose price increases in July 2014 include: fresh fish, electricity rates, inter-city transport fares, air transport rates, rice, beef, eggs, spinach, tomatoes, red onions, filter cigarettes, gold jewelry, gasoline, dry instant noodles, live chickens, free range chicken meat, purebred chicken meat, preserved fish, long beans, kale, potatoes, grapes, apples, papaya, pears, watermelon, tomato fruit, red chili, coconut, roasted chicken, fried chicken, grilled fish, light meals/snacks, noodles, rice with side dishes, dumplings (siomay), soup, clove cigarettes, white cigarettes, house contract rates, wages of non-foreman workers, kindergarten tuition, primary school tuition, cars, and train fares. While, commodities whose price decline are: carrots.

In July 2014 all expenditure groups contributed to inflation, namely: foodstuffs 0.38 percent; processed foods, beverages, cigarettes, and tobacco percent; education, recreation, and sports 0.04 percent; and transportation, communication, and financial services 0.17 percent.

Foodstuffs group in July 2014 experienced inflation at 1.94 percent or increase of index 117.41 in June 2014 119.69 in July 2014.

All the 11 subgroups in July 2014 experienced inflation at 1.94 percent or increase of index from 117.41 in June 2014 to 119.69 in July 2014.

This group, in July 2014, contributed 0.38 percent to inflation. Dominant contributors to inflation include: fresh fish 0.08 percent; rice, beef, purebred chicken eggs, Spanish, tomatoes, and red onion at 0.02 percent, respectively; dried instant noodles, live chicken, free range chicken meat, purebred chicken meat, preserved fish, beans, kale, potatoes, grapes, apples, papaya, pears, watermelon, tomato fruit, red chili, and coconut at 0.01 percent, respectively. Conversely, dominant contributors to deflation, this month, are carrots at 0.01 percent.

 
In July 2014, there was an inflation of 0.93 percent with Consumer Price Index (CPI) at 113.05. From 82 cities of CPI, all cities recorded inflation. The highest inflation occurred in Bengkulu at 2.92 percent with CPI at 116.30, and the lowest occurred in Maumere at 0.13 percent with CPI at 111.07. (E)

Business New - August 8, 2014