AMIDST ECONOMIC SLOWDOWN, GOVERNMENT MUST INDUCE MARKET OPTIMISM

Amidst economic slowdown at home and slow recovery of global economy, it was important for the Indonesian Government to regain market trust which faded lately. The objective was to regain Rupiah supremacy against USD which over the year was depreciated by around 11%.

Some macro economic aspects needed restoration and the market needed to be informed about it so trust could be regained. For example, how to manage overseas debt (ULN) to keep it within safe level. As known, by end of Q II 2015 when growth was 6.3% (y o y) growth if ULN was slower than growth of Q I-2015 at 7.9% (y o y).

Overseas debt by end of Q-II-2015 was at the position of USD 304.3 billion consisting of the public sector USD 134.6 billion (44.2% of total UN) and ULN of the private sector USD 169.7 billion (55.8% of total ULN).

Slowdown in ULN growth was posted in the private sector, and 13.4% (y o y) in the past quarter to become 9,7% (y o y). by that development, DSR turned better from 56.9% in Q I-2015 to 56.3% in Q II-2015.

Other points was commitment by ministries/institutions to accelerate budget absorption. President Joko Widodo was outrageous that budget absorption was only 20% while now it’s already August. The President commanded the Ministries to focus acceleration of capital expenditure.

Besides it was advisable for the Government to make overall deregulation to ease procurement of goods and services, investment, and business permit. All regulation like Government Regulation, Presidential Regulation and Ministrial Decree which were obstacles would be axed.

The President also asked the Minister of Internal Affairs to speed up liquidation of Rp.270 trillion held at Regional Development Bank (BPD) so the village fund could be liquidated. The Government also prepared an “anti-criminalization” regulation to protect local leader who wished to liquidate their money.

They way it had been, some Provincial Leaders were afraid they could be suspected of corruption so fund stayed idle at BPD. In particular, the President also instructed the Ministry of Finance Bambang Brodjonegoro to focus attention on acceleration of budget absorption at Ministries because it was the propeller of economic growth.

It’s already August, but capital expenditure of the Ministries only reached 20% of budget of around Rp.275 trillion in APBN-P 2015 while budget absorption as a whole was posted at around 50% of state budget of around Rp.1,984.1.- trillion. To be exact: realization or more per August 19 last, or 50% more than APBNP target of 2015 at Rp.1,994.1.- trillion while realization of state’s income was 56% of the targeted Rp.1,761.6.- trillion.

By nominal the ministries contributing most in the realization of state’s expenditures were: the Ministry of Public Works and People’s Housing (PUPR), the Ministry of Defense, and the Ministry of Transportation. The Ministry of Finance was also trying to increase income from tax target were not met, fiscal deficit might widen to 2.1% - 2.2% of GDP although still below 2.7% of GDP.

Meanwhile the Ministry of Public Works (PUPR) had absorbed fund of Rp.31 trillion or 21.7% until August 20, 2015. The real projects not being put in tender was posted at Rp.4.2 trillion meaning there was 4% of the entire project. The Ministry was optimistic about absorbing 30% of budget by end of August. The projects being aimed at were connectivity projects like: road, dams and reservoirs.

The Moneymarket

Rupiah value exchanged at interbank transaction in Jakarta on Friday (21/8) weakened by 29 points to become Rp.13,914 against the previous position of Rp.13,885.- per USD. The Fed being uncertain about timing to increase FFR made marketplayers feel more comfortable to hold USD.

In the present condition, even if Rupiah strengthen it would be but temporary because the sentiment from the international tend to be negative. However, monetary operations run by BI could ease pressures o Rupiah.

BI was reported to run some strategies, among others to tighten Rupiah liquidity in the moneymarket, buy SBN Promissory Notes at the secondary market and change the mechanism of Reverse Repo from Variable Rate Tender to Fixed Rate Tender.

Indonesia’s economic data was expected to post better result than before. Indonesia’s economic growth rate tend to slow down: in Q II 2015 Indonesia’s economic growth was only 4.67%, lower than previous attainment at 5.03%.

Last week (21/8) Rupiah’s downturn against USD had been quite dramatic. USD swung up ad down like roller coaster. In the morning session USD was opened to strengthen to Rp.13,875 compared to transaction on Thursday (20/8) at Rp.13,870.- but not long thereafter Greenbuck solidified to reach its highest level at Rp.13,945.-.

After soaring up high suddenly USD slumped to as low as Rp.13,835.- per USD against the day before. All of a sudden soared up again to around Rp.13,940.- per USD.

Rupiah value against USD was constantly under pressure. Rupiah weakening had been constantly under pressure due to external sentiment. Investors rushed to keep USD and Third Party Fund was dramatically under pressure. The world’s unimpressive economic condition also had its influence on countries of the emerging market including Indonesia. China responded to the global condition be  deliberately weaken Yuan by more than 2% to jack up export and keep economy growing but weakening of Yuan pushed Rupiah down.

Not just China, the Central Bank of Vietnam also followed China to weaken their currency. The objective was the same, to encourage Vietnamese exporters be more aggressive in exporting. Three days ago the Central Bank of Vietnam, devaluated their money to become Dong 21,890 per USD, they also broaden their trading range to 3%.

Apparently the Vietnamese Dong had been devaluated three times by the Central Bank. In the previous week the State Bank of Vietnam had broaden the transition range of their currency from 1% to 2%.

The condition was predicted to continue till year end; besides export increase was not significant. In the end economic slowdown suppressed performance of domestic banking.

Today BI and OJK were adopting policies to improve the financial sector. Now it was left for the Government to be more aggressive in spending state budget for better growth.

The Minister of Finance Bamabang Brodjonegoro believed that Rupiah was under pressure of global adversity which also suppressed currencies of the emerging states. The Government and BI was fostering teamwork to solve problems.

The following information explained why Rupiah was constantly under pressure. According to Coordinating Minister Economy Darmain Nasution, the out following fund which tend to be high in Q III-2015, in addition to currency was eroded Rupiah which during transaction on Thursday (20/8) fell to the level of Rp.13,900.- per USD. Market psychology posed as additional pressure.

Beside being at mid year, the time for companies to send their dividend abroad, uncertainty of the Fed increasing FFR in America generated its negative effect on Indonesia.

Somehow the trend of Rupiah weakening would not last too long because the Government had taken anticipated measures to block capital from further outflow. One of the actions was to accelerate realization of infra-structure projects whereby foreign capital might be pulled in.

Strategic projects like urban transportation System known as Light Rail Transit (LRT) would be accelerated. The presidential Regulation Plan for LRT had been submitted to President Joko Widodo last week.

BI also solidified the Government’s policy by restricting purchase of USD in Indonesia; this was to minimize pressures on Rupiah. The Government had so far only regulated buyings of Green buck above USD 100,00,- per month; soon it would be lowered further to USD 25,000 per month, which means if a person or company made purchase of above USD 25 thousand per month he would have to complete certain underlying transaction be mandatory for him to report underlying transaction and insert taxpayer ID Number (NPWP).

From the above picture there was chance for Rupiah to gain some strength (21/8) to around Rp.13,825.- – Rp.13,875.- per USD while Rupiah would this week move in the range of Rp.13,770.- – Rp.13,875.- per USD with tendency to strengthen.

The Capital Market

Since most of the stockmarkets in Asia including China weakened by more than 3%, index of IHSG and BEI during closing session on Thursday (20/8) weakened by 42.33 points (0,94%) to the level of 4,441,91. Meanwhile index of LQ-45 weakened by 8.47 points (1.12%) to the level of 747.93. the Syariah based index as part of ISSI dropped by 1.23 points (0.86%) to become 141.44.

Transactions was posted at the volume of 3.336 billion lots worth Rp.2.994.- trillion reaching the highest level of 4,473 and the lowest 4.427.63 shares strengthened, 240 shares weakened and 73 shares stagnated.

Weakening of IHSG was simultaneous with regional stockmarkets like Asia Pacific excluding Japan; MSCI was down by 12.47 (0.43%) to the level of 860.56. Index of Nikkei Japan was closed to inch down by 189.98 (0.94%) while Shanghai SE Composite in China was closed to weaken by 129,82 (3.42%) to reach 3,664.29.

Meanwhile index of Hang Seng in Hong Kong was closed to fall by 410.38 (1.77%) to become 22.757. index of KOSPI in South Korea was down by 24.83 (1.28%) to become 1,194 and index of Straits Times Singapore was down by 29.85 to 3,011.40.

To continue to initial session on Friday (21/8) during transaction of Session 1 IHSG was constantly under pressure and moved to the red zone. IHSG during end Session 1 weakened by 91.16 points to fall by 2.05%. 40 shares strengthened and 42 shares stagnated. The total shares being transacted was 1.84 billion lots with transactions totaling Rp.1,85 trillion.

Index of Investor 33 weakened by 5.94 points or down by 1.93% to the level of 301.24. index of LQ 45 weakened by 16.13 points or down by 2.15% to 731.8. IHSG during closing session last week end (21/8) was at 4,450 – 4.475.

So amidst downturning trend today, many analysts recommended short term trading with high stop lost.

With lack of positive sentiment from without or within, IHSG and BEI Jakarta this Friday continued weakening by 40.24 points or 0.91% to become 40.24 points (0.91%) to become 4,401.66. Meanwhile LQ45 descended by 10.30 points (1.38%) to become 737.63.

Marketplayers were expecting that the policy adopted by OJK to permit emitents to buyback their shares could ease pressures on IHSG and reduce market turbulence.

In spit of net selling by foreign investors, the condition of Indonesia’s stockmarket today was quite satisfactory in times when the Fed increased FFR. Weakening of IHSG by 15% was because there was no big investors to support it.

The present condition was different from that of some years ago. When Jamsostek was not BPJS it contributed a great deal to sustain IHSG. The role of Jamsostek was today no longer significant because they focused more on servicing than investing. The effect became significant when foreign capital flew out of the country even in not too sizable amount.

The present global condition was today still negative toward the Fed increasing FFR while Indonesia’s economic condition was not becoming any better. BI was also waiting until FFR was really up, then only to adopt a policy more supportive to national economic growth. So IHSG was predicted to ascend to 4,750 – 5,000 till end of year. Hopefully IHSG would rebound by September.

The argument was based on the belief that the exit of foreign investors from the domestic market was only temporary this was because USD was constantly gaining strength and many investors were turning to other instruments like USD, bonds, of gold. So domestic investors should not panic under the present circumstance. They could net buy shares at low price left by foreign investors.

Strengthening of USD in tandem with depreciation of Yuan lately need not be responded with over anxiety. Moreover the Fed might cancel increasing FFR as China’s Central Bank devaluated Yen; hence the fear of possible sudden reversal could be minimized.

Since early this year IHSG was already minus 15%, but IHSG had the potential to regain strength when the Fed continued to increase interest rate till year’s end so the chance for IHSG to rise was open wide. Some emitent of certain sectors were still prospective such as the financial sector, property, retail and basic industry.

In the long run, emitents of cement, iron and steel, construction, and transportation industry would strengthen in line with infra structure projects run by the Government. With volume of RAPBN 2016 amounting t Rp.2,121 trillion of which Rp.313.5 trillion was allocated t infra-structure it would certainly was allocated to infra-structure it would certainly strengthen optimism that IHSG would move up to around 4,475 – 4.525 over this week. (SS)

Business News - August 26, 2015