CONTINUING MP3EI PROGRAM

Master Plan for the acceleration and Expansion of Indonesia’s Economic Development (MP3EI) program has been there-year-old since it was implemented in 2011. The government declared that from July to December 2014, a ground breaking ceremony will be performed on 132 MP3EI projects with an investment value of IDR 443.5 trillion.

The project is expected to provide a positive effect on the national economy. Groundbreaking ceremony on the 132 projects will be based on the commitment of the private sector and project officers.

The groundbreaking ceremony, in the second half of this year, will be done more on small projects whose value is not too big, but have a quite good effect on the economy. The small projects are basic infrastructure projects with a total investment of IDR 443.5 trillion.

In addition to the 132 projects, in the second half of 2014, there are eight other MP3EI projects schedule to be inaugurated by the government. The eight projects have been worked on before, namely there projects in Java corridor, two in Kalimantan corridor, and three in Maluku-Papua corridor.

Projects that will be inaugurated include double-track railway project across the north of Java connecting Cirebon and Surabaya with an investment of IDR 16.4 trillion, Sepinggan international airport project in East Kalimantan with an investment of IDR 2.1 trillion, and ibra airport development project, Tual baru with an investment of IDR 200 billion.

The implementation of MP3EI projects still face problems, namely preparation to project implementation, land, and funding. In terms of project preparation, the problem is in EIA (environmental impact assessment), the auction process or contract problems, and regulatory preparedness.

Then, in terms of land, there is a problem in designation of land, land acquisition, land disputes, and overlapping of regions. Meanwhile, in funding, there is immature financing scheme. Of all these problems, the realization of the investment can still be done quite well dominate the entire connectivity of infrastructure projects, because the state budget (APBN) is very limited.

Now, approaching the change of national leaders, Indonesia has high hopes on the president elect to continue with MP3EI projects because the realization to this day is very minimal. Investment realization of MP3EI in the first semester of 2014 worth IDR 25 trillion, or only 4.2% of the target for 2014 at IDR 586 trillion.

Although the results of verification states that a number of projects, which construction cannot begin in 2014, is valued at IDR 117.5 trillion, but the realization in the first of 2014 only reached 5.3%. In a video conference by President Susilo Bambang Yudhoyono during inauguration, groundbreaking, and reporting of MP3EI projects recently (September 5), six representatives of governors of the six economic corridors always requested for a sustainability of the program by the president-elect.

A majority of them considered that the improvement of the economic sector with the implementation the program that began in 2011, to this day it is still considered unoptimal, because of some obstacles that occur.

This opinion is reinforced by the statement of the Coordinating Minister of Economy, Chairul Tanjung, that the implementation of MP3EI requires a long time so that the benefits of the program cannot be enjoyed directly.

However, if economic growth is high, equitable, and qualified due to the positive impact of MP3EI, it will automatically reduce property. Employment was believed to increase.

Based on data of the half of 2014, since the lancing of this program in 2014 until the first half of 2014, MP3EI was able to absorb 7.25 million workers. Of the total workforce, high school/vocational school graduates constitute the largest portion, i.e. 2.89 million people, followed by junior high school graduates at 2.65 million people.

Meanwhile, according to data of the office the Coordinating Ministry of Economy, MP3EI project realization from May 27, 2011 until the first quarter of 2014 is IDR 838.9 trillion. The progress of the infrastructure sector from the state budget is IDR 131.8 trillion, state-owned enterprises IDR 89.17 trillion.

For project distribution, amongst others, IDR 397.7 trillion are spreading in Sumatra as much as 40 projects worth IDR 55.63 trillion, Java with 32 projects worth IDR 217.7 trillion, Kalimantan with 47 projects worth IDR 57.19 trillion, Sulawesi with 24 projects worth IDR 22,496 trillion, Bali – West Nusa Tenggara with 28 projects worth IDR 17,548 trillion, and Papua – Maluku with 33 projects worth IDR 27.15 trillion.

So, the MP3EI program has been appropriate to be continued by the new government. However there have been still plenty of obstacles in the realization of projects so far, especially land acquisition. Therefore, it is appropriate if now the office of the Coordinating Minister of Economy always encourages all central and local government officials to coordinate the execution.

And, there is also a problem in the central government, i.e. slow coordination between ministries making the licensing process too complicated. Hence, all relevant government agencies are required to coordinate with each other. One of the projects, which is delayed, is the construction of steam power plant (PLTU) in Batang, Central Java which is still hampered by land acquisition problem.

Related to this, there is a growing perception that if people will not let go of the land, the government agreed to find a new location as had previously been planned by the Coordinating Minister of Economy. The governors also believed that the government should encourage and continue the MP3EI program.

Projects in MP3EI, basically, already exist in the government’s project plan that will be done and contained in the Medium-Term National Development Plan. Thus, whether MP3Ei will be continued or not, would not affect the implementation of projects that have been scheduled. It means institutionally it may be continued or discontinued by the new government. The important thing is that the project is not lost because it is already scheduled.

President SBY also expressed his expectation to leave it to Jokowi as the president-elect, so that what has been achieved in the framework of a three year MP3EI program could be continued, because there is still a remaining 11 years. The Coordinating Minister of Economy, Chairul Tanjung, asserted that MP3EI is important to be continued by the new government.

Thus, the potential of Indonesia to become a developed country could be achieved. Indonesia has all the prerequisites to become a developed country, such as abundant natural resources, a great number of productive population and others. It will be a valuable asset if it is led by a strong leader.

The acceleration project for Indonesian economic development has been initiated by SBY administration since 2011-2012. The main focus is development of new economic center and acceleration of infrastructure that connects every region in the country. Even, the government claims that MP3EI projects could lift Indonesia’s per capita income to USD 15 thousand per year and Indonesia could become a country with the 7^th largest economy at the age of 100^th year of the Republic of Indonesia. (E) 

Business News - September 17, 2014

INDONESIA’S ECONOMY OUTLOOK ADMIST GOVERNMENT TRANSITION

Toward succession of leader shop from President Susilo Bambang Yudhoyono [SBY] to Joko Widodo as elected President for the period of 2014 – 2019, national economy was in the period of transition.

Only trouble was that toward succession on October 20 2014 next, the United Indonesia II cabinet [KLB II] was no longer solid. Some ministers had changed profession to become House members by October 1, 2014. Even before that period some ministers had resigned either for political or legal reason.

Under such circumstances President Jokowi would take office as new President. Indeed this would not be easy. The problems willed by the past Government were hard, among others the price increase of subsidized oil, infra structure building and swelling deficit in current transaction. All the three problems were strategic but not easy to tackle, while economic growth this year was predicted to be only around 5,2% way below the targeted 5.5%.

To healthen economy, tight money policy seemed to be still adopted till of year. This was evident when meeting of the Board of Governors of BI [RDG] on September 11, 2014 decided to maintain BI rate at 7.50% with Lending Facility and Deposit Facility at 7.50% and 5.75%.

The policy was synchronous with efforts to control inflation toward the targeted 4.5% + 1% in 2014 and 4% + 1% in 2015 and to minimize Deficit in Current Transaction. The Central Bank rated that the process of adjustment of economic structure toward well balance condition was still underway supported by stable macro economy.

In the future BI saw a number of domestic and external risk to be watched on which would disturb macro economic stability. For that matter BI must strengthen monetary and macro prudential policy mix and policy to strengthen domestic economy structure.

BI must also foster coordination of policies with the Government in controlling inflation and deficit so the process of economic adjustment could run well to maintain sustainable and inclusive economic growth.

Meanwhile on the global side, BI’s assessments showed that global economy was constantly showing significant recovery. America’s economy was constantly growing, being supported by progressed manufacturing industry although by structure still weak as indicated by the still low contribution of labor and productivity.

In regard to that matter, normalization of the Fed’s monetary policy was predicted to be executed gradually in spite of the possibility of increased Fed’s fund Rate in Q II or III in 2015. On the other hand, Europe’s economy was showing slowdown as indicated by domestic demand which was relatively low and low export due to Ukraina-Russia political tension.

The ultra low bank interest, run in tandem with stimulus package by ECB was expected to help economic recovery process in Uni Europe to increase liquidity excess at the global market. In developing countries, economic growth was predicted to be limited which would lower commodity prices.

Amidst China’s economic growth which was relatively stable at around 7.5%, India’s was posting betterment with projected growth at 6%. Meanwhile some central banks in Southeast Asia increased their bank interest for the sake of controlling inflation. It was right if in they the future must keep watch on some global and regional risks so as not to disturb national economic growth and stability.

On the domestic side, economic growth was still having moderation. Although still growing high household consumption was still on the slowdown zone. The weakness was indicated among others by downturn of retail sales and automotive sales.

On the other hand, Government’s consumption was predicted to increase in Q III IV in line with budget absorption platform although at lower level in line with austerity plan toward year end. Investment performance was also predicted to improve although at limited level. The condition was among others influenced by limited export progress in line with skuggish growth among emerging markets.

In line with moderation in domestic demand, import activities was also downturning. As a whole in 2014 growth was still in line with previous estimate around 5.1% - 5.5% with tendency moving toward lower margin around 5.2% - 5.3%.

Trade Balance posted surplus especially from surplus in non-oil gas trade balance. Indonesia’s trade balance on July 2014 posted surplus of 0.13 billion after posting deficit of USD 0.29 billion the month before. The good trade performance was supported by bettered surplus of trade balance in non oil gas commodities which increased to become USD 1.60 billion.

In the future non oil-gas trade balance was predicted to rely on export in line with bettered global economy and re opening of export valve for raw mineral ores, although deficit in oil gas trading would still continue.

On the financial side, inflow of foreign capital would remain high, being driven by positive perception of domestic economic prospect which was healthier and also due to policy ultra low interest policy by banks in Europe. By August 2014 last, inflow of foreign porto folio to Indonesia’s moneymarket came to USD 14.4 billion.

Under such circumstances Indonesia’s forex reserves increased to USD 111.2 billion or equal to 6.5 month of import plus payment of Government overseas debt which was above the international Adequacy ratio of 3 months importing.

 

So far Rupiah had been stable, although being under pressure in Q 3. Rupiah on the average weakened by 0.24% [mtm] against the month before to become Rp11,710 per USD. By point-to-point Rupiah was depreciated by 1.03% and was closed at Rp11,698 per USD. 

Rupiah was weakened by sentiment, domestic or external. The external factor included geo political turbulence, economic development in China and the possibility of the Fed acting sooner than expected. The domestic sentiment came from investors who were anxiously waiting for the Government’s policy including the energy subsidy policy. In the future, BI must stive to maintain stability of Rupiah Value.

Inflation as indicator in August tend to descend in line with the anti-climax process of post Idul Fitri price upturn. Consumer’s Price Index [IHK] in August posted inflation of 0.47% [mtm] or 3.99% [y o y] was lower than inflation of the month before at 0.93% [yoy].

Descending inflation was on account of inflation by volatile food and administered prices, and core inflation being under control. Inflation was cooling off to 4.47% [y o y] as inflation expectation was maintained. BI rated that inflation by August 2014 was still within tolerable inflation target of 4.5% + 1% in 2014 and 4.0% + 1% 2015.

Still in the future BI watch on various risks which would affect the pursuit of inflation target, especially inflation caused by administered prices which would foster coordinative measure of controlling inflation.

The macro-economic development was still in line with the condition of financial system. So far BI was still certain about stability of financial system, Such was supported by resilience of the banking system and well protected performance of the moneymarket. The banking industry was still strong against credit risk, liquidity and well guarded market and strong capital support.

Strong confidence in the condition of the banking sector in Indonesia, was strengthened by outcome of the stress test exercised on bank’s capital capacity. Considering the factors of economic slowdown, high increase of bank interest, downturn of asset of the moneymarket and currency weakening, generally speaking bank’s capital was still safety way above the minimum required standard.

The condition of liquidity was also emitting positive signal. BI’s monitoring unveiled that the risk of bank’s liquidity was improving till end of year. Such was supported by inflow of post Lebaran banknotes and Government’s finance which started to expand.

BI estimated that in the future bank’s liquidity would improve with increased Government’s expenditure. Simulation based on scenario of credit growth of 17%, return of capital and increase of oil price bank’s liquidity ratio in 2014 was predicted to be still above safe level. In terms of bank intermediacy, credit for the private sector slowed at 17.2% [y o y] in tandem with economic slowdown.

Meanwhile bank’s credit risk was still at safe level. Cases of NPL was still at 2.24% way below the safe level of 5%. Still BI must monitor high NPL in 4 sectors, i.e. construction, mining, trading and social service.

In July 2014, NPL of the construction sector was posted at 4.43%, an increase against previous month at 4.42%. in the mining sector, NPL was posted at 3.09% against 2.49% at previous month. The Trading sector postred NPL of 3.06% of 2.92% and social service 2.96% against 2.48% of the previous month.

Beside NPL, BI must also develop indicators based on historic data to see the potential of changing credit quality from well performing to become non performing. Based on the said indicator and latest development, there were 3 sectors worthy of attention, i.e. construction, mining and trading.

Today BI was also watching on the development Third Party Fund [DPK] which slowed down in July 2014 to become 11.36% against 13.63% the month before. Slowdown of DPK growth was predicted to be only temporary in line with high demand for banknotes during Lebaran and was predicted to grow again till end of year in line with Government’s growing expansion.

In tandem with bettered liquidity, some big banks already lowered their deposit interest in August 2014. The condition was expected to continue until Third Party Fund Competition lessened.

Finally for the future BI felt there were some domestic and external risks to be watched on which would disturb macro stability and financial system. For that matter BI must monitor all aspects of the banking sector and strengthen macro-prudential policy. BI must foster coordination with other financial authorities to maintain stability of the banking and financial sector. (SS)

Business News - September 17, 2014

MARKET PLAYERS WAITING FOR THE NEW GOVERNMENT

One month before official hand over from the present Government to the next Government, marketplayers were focusing attention on the changing circumstance. Many rumors about economic policy in the period of transition would be marketplayer’s attention. The political tension in the post election had subsided, to be replaced by another tension between the Parliament of 2009 – 2014 era and the SBY Government.

The argument was triggered by the Red-and-White Coalition [KMP] who insisted that election system for Governors of the Provinces be exercised not on the basis of direct election system by the people but indirectly instead in House. Many circles objected the proposition as indirect voting by parliament was feared to injure democracy. People’s most fundamental right and guaranteed by 1945 Constitution would be fettered by the changed election system.

On the macro economy side there was notably no bad news except reaction to the increase price of 12 kg tube gas and the discourse on the increase price of subsidized oil by the next Government. In the short run, the market’s focus of attention was still on the policy stance or Thursday [11/9].

BI announced benchmark rate at 7.5% - un – changing since November last year. According to BI, benchmark rate at that level was still in line with inflation projection this year at 3.5% - 5.5% as an effort to reduce deficit in current transaction to a healthier level.

In the future BI warned that some great challenges are there to watch on. The world economy kept recovering, although structurally still weak especially in term of labor and productivity which was still low. The Fed’s monetary policy was predicted to run gradually, although it might happen in Q II or II of 2015.

In developing countries economy growth was relatively limited resulting in lowered commodity prices. Amids China’s economic growth which was notably stable, India’s economy was posting recovery while some central banks in Asia were increasing interest to control domestic inflation.

In the future BI must keep watch on a number of global and regional risks to protect national stability and growth. It was noteworthy that BI would not always rely on juggling with bank interest to respond to inflation, including if the next Government increased price of subsidized oil.

BI would use mixed instrument and coordinate with the Government to control inflation and second round effect of increased oil price. BI would take pre emptive measure to anticipate increase of oil price which would affect many aspects of life so bank interest would not be the only instrument used.

BI estimated that inflation would only increase by 1% if subsidy was increased by Rp. 1,000 per liter. The effect of inflation was only one-shoot inflation but the turbulence would subside in 2-3 months. On the other hand inflation was not BI’s only consideration in making interest adjustments. External balance like current transaction and capital flow would be considered too.

Previously some economists believed that BI rate needed not be elevated in case oil price eas increased by Rp. 1.000 by end of year. The point was that effect on inflation would be limited, beside BI rate was today way above inflation. Beside, BI saw that inflation up to August was still within target of 4.5% + 1% in 2014 and 4% + 1% in 2015. Inflation in August was posted at 0.47% [mtm] or + 3.99% [yoy]. Core inflation was slightly down to 4.47% [y o y]. Eased inflation was mainly supported by volatile food inflation and administered prices and well controlled core inflation.

In the future, BI must stay on the alert of various risks which might affect attainment in inflation controlling especially those originating from administered prices which would foster coordinative steps to control inflation. BI saw that this year inflation would come close to the inflation limited target of 4.5% + 1% including the effect of price increase of 12 kg LPG gas.

The Moneymarket

Rupiah value was posted to weaken by end of session last Thursday [11/9]. Rupiah was depreciated by 0.11% to Rp11,827 per USD. Through the day Rupiah moved in the range of Rp11,805 to Rp11,840 per USD. Data of Jakarta interbank Spot Dollar Rate [JISDOR] had it that Rupiah value was at Rp11,831.

Meanwhile Rupiah value against USD was opened to Rp11,820 per USD against the position on Thursday at Rp11,815 per USD. Some marketplayers were influenced by rumors that the US Central Bank, the Fed, would instantly increase bank interest so they tend to hold the USD.

Surprisingly development of monetary data at home was changing for the better. As noted Indonesia’s forex reserves by end of August increased 0.63% against that of end of July 2014. Increased forex reserves originated from export yields [DHE] of Government’s oil gas which exceeded expenditure for Government’s overseas debt payment.

Forex reserves by end of August was posted at USD billion while in end of July was posted at USD 110.5 billion. The position of forex reserves by end of August was enough for financing 6.5 month of import and payment of Government’s overseas debt which was safely above international adequacy of 3 month of import. Increased forex reserves had its positive impact on the efforts to strengthen the external sector and maintain sustainability of national economic growth.

Rupiah by last weekend [12/9] must have strengthened moderately at around Rp 11,800.- Rp 11,850 per USD. The domestic issue of price increase of subsidized oil by the next Government would strengthen market confidence on spit of increased inflation pressures at low degree.

Marketplayers would appreciate if the next Government increased price of subsidized oil to heal-then state budget’s structure of 2014 – 2015 so the would be more room for fiscal for building basic infra structure.

Not less important was the ultra low interest policy [minus 0.2%] in Europe which ha its result in entry of foreign capital to Indonesia’s moneymarket because the offered higher yields.

The Capital Market

Unlike Rupiah which tend to be under pressure index of IHSG at BEI during transaction on Friday [12/0] was open to strengthen by 0.04% to 5,135.11. Meanwhile index of LQ 45 inched up by 0.5.519 points [0.06%] to the level of 869.549. Generally speaking IHSG movement was relatively flat in not-too-wide span. Marketplayers tend to wait until mover catalyst came by.

After weakening for a few days IHSG during opening session on Thursday [11/9] strengthened by 21.97 points to the position of 5, 164. Even during closing in afternoon session strengthened by 23.34 points to the position of 5,167. However during closing session on Thursday [1/9] IHSG again weakened by 9.96 point to the level of 5,133.

Weakening of IHSG was followed by weakening of LQ45 by 4.40 points to the level of 869.03. the same was with Index of JII which weakened by 5.33 points to the level of 683.32 points. Most of the monitored sectors were posting weakening. The agricultural sector was posting worst weakening at 23.06 points to the level of 2,114, followed by the mining sector which weakened by 12.36 points to the level of 1,557. The infra structure sector weakened by 5.34 points to the level of 1,66.

The volume of trade transaction today was posted at 4.986 billion lots at the value of Rp4.626 trillion. 176 shares strengthened, 139 weakened and 92 shares were stable. All in all IHSG slipped into the red zone toward closing session. Act of selling by foreign investors was inevitable.

Weakening of index was on account of Rupiah being on the downturn, while movement of the regional shares was overshadowed by fear that the Fed would increase benchmark rate sooner than previous expectations. Investors were also analyzing the effect of stimulus by the European Central Bank [ECB]. Global investors were also waiting for the monetary policy to be adopted by the Fed in FOMC on Tuesday [16/9] and Wednesday [17/9].

Meanwhile stockmarket in Asia were moving the mixed way, only China’s stockmarket inched down. Regional Marketplayers were still waiting for a positive sentiment. Index of Nikkei 225 inched up by 52.84 points [0.33%] to the level of 15,962.04 points [0.14%] to the level of 24,698.36. Index of Composite Shanghai inched down by 1.69 points [0.07%] to the level of 2,309.99. Index of Straits Times increased by 6.18 points [0.18%] to the level of 3,353.46.

Meanwhile index of Wall Street was not fully recovered, only index of S&P and Nasdaq strengthened. Index of Dow Jones was corrected due to selling pressures. Increase world’s oil price made energy-based shares to be uplifted. Price of Brent oil increased by more than 3% this month. Increased oil price uplifted share price.

The sudden increase of unemployment data brought pressures on market movement at early session. It made investors wonder if trading was moving upward or downward. During closing session on Thursday [11/9] index of Dow Jones weakened by 19.71 points [0.21%] to the level of 17.049. index of S&P 500 increased by 1.76 point [0.09%] to the level of 1.997.45 and index of composite Nasdaq grew by 5.28 points [0.12%] to the level of 4,591.81.

Index of Stoxx Europe 600 reflected Europe stockmarket which also dropped by 0.3%. Europe stockmarket was on the 5^th day of downturn as Europe’s officials stated they would put sanction on Russia by blockading access to corporate capital in Europe.

The commodity market was also weak. Brent oil was now the cheapest oil since 2002 admist speculation on increased stock of oil. International Energy Agency [EA] axed projection of global demand one day after OPEC also axed the supply prospect.

Meanwhile investors saw inflation in China last August was the lowest in the past 4 months. MSCI Emerging Markets Index the reference index in developing countries was in the sixth day of downturn. These were all under one umbrella, so the economic slowdown in China could lash effect on US economy. Act of IEA axed projection of demand for oil, inflation slowdown in China, and new sanction by Europe Russia, signaled act of selling in the market.

At home BI’s consumer survey showed that consumer’s confidence strengthened slightly in August 2014. Consumer’s Confidence Index [IKK] was posted at 120.2, up by 0.4 points against previous month which injected positive sentiment for marketplayers.

The reasonably strong consumer’s confidence was supported by bettered Economic Condition index today [IKE]. In line with consumer’s perception on better employment opportunities. Such PAGE was reflected in index of employment opportunity which increased by 5.7 points to become 103.2, the highest in the last 4 years.

Enrollment opportunity for Civil Servant Candidates on August 12, 2014 was predicated to improve consumers’ perception of employment opportunities today compared to 6 month before.

Besides, survey outcome also unveiled that consumers estimated that prices would increase especially in November 2014 particularly in the categoris of transportation, communication and financial services. Consumers were also expecting prices would increase in February 2015 which was triggered by consumers’ anxiety in regard to Government’s plan to axe subsidy for oil.

The only thing was that stockplayers must pay special attention on Government policy of state owned enterprises [BUMN]. Word was out that the Government was expecting higher dividend from BUMN whereby to secure targets in RAPBN 2015. The Government would focus attention on BUMN. Still the Government would be considerate in expecting dividend from BUMN so their expansion plan would not be affected.

Today the ministry of BUMN of BUMN was optimistic he would meet the target of collecting BUMN dividend to become Rp41.7 trillion in 2015. In RAPBN Budget 2015 target of BUMN dividend became Rp41.73 trillion.

However the development of political climate at home would indirectly affect Rupiah and IHSG. It was not impossible that investors would make a stance to do profit taking for safety’ sake. The political factor could be something like debate over what sort of system would be applied for Regional election [Pilkada]

If it was decided that election would be exercised through the Parliament, the market would tend to perceive it negatively. House’s decision about Pilkada [regional election] would be made on September 25, 2014. Political analyst agreed that Pilkada could democratically be exercised by open and direct election by the people. To change the system means regress of democracy in Indonesia.

During closing session last week [12/9] IHSG was predicted to strengthen in the range of 5,135 – 5,160 and continued to strengthen to the level of 5,150 – 5,200 especially with entry of foreign capital from Europe. (SS)

Business News - September 17, 2014