Economic Policy
Package 1 of September (Chapter One) run by the Government was no guarantee
that the market would be revitalized.
IGSG was still in low mood last Friday (10/9) closed to drop by 10.74 or
0.2%.
Beside Rupiah was also struck at
around Rp. 12 thousand per USD. The Coordinating Minister of Economy Darmin
Nasution admitted that the Policy Package was no Magic Wand that would bring
instant change besides global sentiment was will strong.
Proper implementation was all that
counts. Darmin Nasution said that President Joko Widodo (Jokowi) would
elaborate on the Technical side of the Policy before he visited the Middle
East.
Today the Government was proceeding
to prepare Phase Two of the Economic Policy. Previously the Coordinating
Minister of Economy summoned a number of Ministries to discuss the Presidential
Regulation for acceleration of strategic project.
Today the Phase Two Economic
Stimulus Chapter 1 announced by President Jokowi on September 9 last was
expected to serve as remedy to economic slowdown. In this Policy Package President
Jokowi focused attention on the real sector which was to be the foundation for
further development.
The President believed that the
Economy Policy Package would strengthen national industry, develop Small
Business, enhance inter-regional trading, and revitalized tourism.
Spontaneously the stimulus Package of Phase 1 was responded positively by
Businesspeople, analysts, and bankers. President Jokowi admitted that this
Policy would not procedure instant result without support of many circles.
On the monetary side, in live with
Economy Policy Package announced by the Government and to stabilize economy
including stabilization of USD. BI had also issued Policy Package consisting of
5 policies.
Meanwhile the position of
Indonesia’s Forex Reserves by August 2015 last was posted at USD 105.3 billion,
lower that the position by end of July 2015 amounting to USD 107.6 billion. The
contraction was on account of expenditures for paying Government’s overseas for
market intervention.
Reduced
forex reserve was in line with BI’s commitment to stay in the money market to
protect Rupiah. Fortunately there was extra support to forex reserves from
the issuance of the Government’s Samurai Bonds to stop deeper slump of Rupiah.
Under the Circumstance the position
of forex reserves by end of August was still enough for financing 7.1 months of
import and paying Government’s overseas debt, and above international standard
of equity of around 3 month of import.
The Government and BI must observe
Standard & Poor’s warning they believed that Indonesia was sensitive to
capital flight trend even more vulnerable than Malaysia who was troubled by
political scandal, lowered oil price and currency devaluation. Indonesia’s
position was the gravest in ASEAN.
According to S&P. Malaysia was
advantaged because their capital base was more solid, so companies and banks
needed not to depend on foreign capital to finance their growth. Such was the
opinion of Kyran Curry, Director of Debt Rating Agency Singapore. They said
that Indonesia was by far more vulnerable to capital traffic and they were
worried of Indonesia’s forex reserves.
Indonesia’s forex reserve shrinking was
close to 7% in the past 5 months by end of July. Although the shirking was less
than Malaysia, but S&P feared the step of monetary authority who “spent a
lot of forex for stabilizing currency.”
Rupiah weakened by 4.9% since July
last, less than half of Ringgit percentage of 11%, after China devaluated their
Yuan. Price of Indonesia’s Promissory Notes sank deeper that than of Malaysia
was in the past 3 months although Malaysia was trouble by the case of failing
oil price and corruptions scandal by Prime Minister Najib Razaq.
The Government of RI and BI were
striving hard to strengthen the domestic capital market, but it might take time
before any result might be seen. The Malaysia’s stock market was basically
stronger. Over the past 2 months index of IHSG had slumped by 15% while index
of Malaysia’s stock market dropped by 10%. Price of bonds in local currency
according to Bloomberg had inched down by 0.7% for Malaysia and 1% for
Indonesia.
Foreign capital amounting to USD 468
million had been drawn of Indonesia’s shares this year, after pumping net fund
of USD 3.8 billion to the capital market since 2014 last, while foreign capital
drawn out of Malaysia’s shares came to USD 3.8 billion or Ringgit 6.9 billion
2014.
Malaysia never had any massive
inflow of foreign capital the way it happened in Indonesia in the past few
years; such was more or less seen in ownership of state’s bonds by foreign
which came to 38% in Indonesia and 32% in Malaysia.
However S&P assured that either
Malaysia or Indonesia where not different in tern of probability of having
their rating demoted. However, Indonesia’s rating might be lowered from
positive to stable in case of macro instability or if the Government failed to
enhance reformation.
According to start allopsoop Head of
Asia Risk and Marketing Strategy at BMI Research Singapore, Malaysia’s economy
posted solid ground compared to Indonesia. Malaysia posted surplus of current
transaction amounting to USD 1.8 billion in Q-2 last while Indonesia posted
deficit of USD 4.48 billion.
Malaysia was also in positive
international intervention position, unlike Indonesia. This means that if USD
strengthened due to increase of FFR, Indonesia would bear increased debt if
calculated in Rupiah which means debt payment would be slower. In case of
Malaysia, their external asset value would increase so the negative effect of
the Fed increasing FFR would be ignorable.
However Rohit Arora, a strategy
expert for the emerging market of Asia Barclay Plc recommended their client to
reduce Malaysia’s bonds and be neutral to Indonesia’s bonds. This investment
institution were worried about the two countries but by seeing the condition of
trading and weakening cycle of commodity price, Ringgit was more vulnerable
than Rupiah.
Indonesia’s domestic capital
resources was not too deep which means that Indonesia was still reliant on
overseas financing Compared to other countries in Asia. This dependency caused
Indonesia to sensitive to external sentiments such as the Fed’s action or currency
devaluation in China.
The Money market.
Many factors could strengthen USD
among them was the Fed’s plan to increase FFR, or devaluation of Yuan in China.
Through 2015 Rupiah would drop by more than 13%.
Last week end (11/9) Rupiah
strengthened moderately in the range of Rp.14.000 – Rp.14.200 per USD as market
players were not entire responding well to Government and BI policy. This week,
Rupiah might ascend to around Rp.14.000 – Rp.14.200 per USD.
Probably market players were waiting
for the realization and outcome of the new Government’s Integrated and outcome
of the new Government’s Integrated Economy Policy package.
Meanwhile during transaction in New
York last Thursday (10/9) USD slightly descended against most of the leading
currencies due to negative US inflation data.
US total import was down by 1.8% in
August, the deepest slump since January which less 18 September next. But
against Yen USD prolonged its strengthening to Ұ 120.63 against the previous Y
120.54.
British Pound sterling strengthened
against USD and Euro as BoE maintained their monetary policy to keep interest
at 0.5%.
It was those external sentiments
which pressed Rupiah down, although speculation was undoable. The Minister of
Finance Bambang Brodjonegoro stated that lately nearly all people were being
speculative about US economic condition, especially when unemployment in the
USA lessened.
The Government of Chins was
ambitious about comforting IMF by proposing Yuan to be included in the
International Reserve Current Basket. China would open doors to foreign central
banks to trade foreign currency in China’s domestic market which means foreign
currency authorities could have forex reserves in Yuan.
The Government of China had
permitted foreign banks to participate in inter-bank bond market. Participation
of foreign central bank would make Yuan onsh0re exchange to be acceptable
globally.
According to the report of Standard
Charter Plc released in May 2015, more than 60 central banks of the world had
invested sovereign wealth fund in Yuan denomination. The total combined
ownership was between USD 70 billion – USD 120 billion. Still three were those
who did believe that the Government of China would drum foreign capital to come
to their domestic market significantly in a short time.
Time reason was that foreign central
banks were not interested in investing in Indonesia under the threat of
currency depreciation when China’s fundamental economy turned better, Upon
presenting at the World’s economic Forum, China’s Prime Minister Li Keqiang
said he would not wage a currency war and promised to maintain Yuan stability
at reasonable level.
Now toward FOMC meeting on September
16 - 17 next, top executives of the Fed were far from agreeing to increase FFR,
such was reflected in the opinion which they expressed.
Although officially the fed was
still inclined to increase inters after September, there would still be another
meeting in October and December, statement of the Fed’s executive reflected
conflict of opinion and uncertainly.
A number of the Fed officials wished
bank inters to be increased because the labor market was recovering fast to
heal economy. The sign of increasing demand for labor was seen in the report of
the US Labor Dept. which posted opening of new job opportunities numbering 5.8
million.
Some executives feared continued low
inflation, increase of USD rate, China’s economic slowdown and turbulence in
the money market. The Fed, they said, could maintain the present interest level
sp they would be assured that global economy would not lead to further chaos.
Those were the factors to be taken into consideration by the Fed.
All of America’s economic data were
today showing signs of progress, but there was a notable obstacle. Internal
development might govern the fed’s decision this weeks, while the real
development in economic data would also be the governing factors.
At the meeting of central banks of
the American states in Jackson Hole last month. Vice Chairman of the Fed
Stanley Fisher was urgent to oppose the market opinion that most likely
increase of inters this September would be much less. Fischer and a number of
the fed’s officials were asked to open option and recommend new measures.
Chairperson of the Fed Janed Yallen would be
in difficult position at that meeting. Since her speech at the Congress last
July, Yallen never spoke a world to the public. Her silence obscured the Fed’s
hesitation even worse.
Before every meeting of the Fed, the
economic advisor staff would recommend alternative steps, including usually the
“middle” option between setting low inters and maintaining eased monetary
option.
The “middle option” could be to
signal that the Fed would increase FFR this year as soon as they could feel
safe about the market trend.
As part of the massage, the Fed’s
top executive would find a way to support their opinion – in the fed’s
statement after the meeting that they would follow up the decision carefully
and gradually.
The situation reminded us of the occurrence
in September 2013 when the fed officially signaled to stop buying Government
bonds, but was hesitant when there was sudden market confusion and decide to
reduce buying of bonds in December. At that time Government of the Fed Ben
Bernande decided to wait for supporting evident sustainable betterment in the
labor market.
Although the decision triggered
market uncertainly, it helped to convince the public that the Fed had their
commitment to attain Lowered unemployment target and inflation of 0%, which the
fed never attained so far.
The president of the Fed Minneapolis
Nayarana Kocherlakota was against increase of interest. Narayana stated that
the fed must maintain interest until inflation reached 2% target. Today, real inflation
was way above target.
Head of the World Bank Kaushik Basu
also reminded the Fed not be in a hurry to increase bank interest because it
might rock the boat. Developing countries would be most affected if FFR were
increased. In the short run, escalation of US benchmark rate would threaten
market of developing nations having sizable debt in USD. INF also asked the Fed
to postpone increase of FFR still next year.
It was at this point that increase a
macro economy condusive to progress, the government of Indonesia together whit
related institutions including BI and OJK was constantly stabilizing economy on
both fiscal and monetary side.
In order to constantly boost
Indonesia’s economy, the Government last Wednesday (9/9) announced launching of
three economy policy package called September 1. On the monetary side, in line
with the policy adopted stability including stability of exchange rate; BI also
set up integrated Macro Policy which consisted of 5 policies.
Firstly, to enhance inflation control
and promote the real sector from the supply side secondly, to maintain Rupiah
stability. Thirdly, so strengthen Rupiah liquidity. Fourthly, to manage supply
and demand of foreign currency, fifthly further steps to control the money market.
Presumably this Chapter One Economy package might not show result as less still
year end but probably middle-long term since 2016.
The capital Market
Index of IHSG at BEI last week
(11/9) started with increase of 20 points driven by position sentiment, while act
of foreign sell was still going on.
During pre-opening session IHSG rose
by 20.188 points (0.46%) while index of LQ45 soared up by 5.162 points (0.71%)
to 7.366.655. Sector wise, not a single sector was down. Three sectors with
biggest increase were: agriculture 1.71%, infra structure 0.63% and another
industrial sectors 0.6%.
Previously during transaction last
Thursday (10/9) IHSG fell into the red zone. The correction could be less after
buying rush toward closing session. Other Asian stock markets were compact to
strengthen in the green zone. Index of Nikkei 225 dropped by 31.54 points
(0.17%) to the level of 18.368.08. Index of Hang Seng strengthened by 130.95
points (0.61%). Index of Composite Shanghai rose by 15.32 points (0.48%) to the
level of 3.231.21.
Hence curve line of indices at BEI
was in reverse direction of Asian stock market. Toward FOMC meeting to be held
this week, most of indices at the region weakened. Today volatility level at
Asia’s stock market was approaching the highest level since 2011 last.
Stakeholders
said that such was because market players tend to wait-and-see for the Fed’s
actions whether or not to increase FFR. Meanwhile anxiety over the economic
addition in China was cooling off. Moreover the Government of China was
striving had to prevent foreign capital from flowing out of the country. The
financial authority of China was also making market intervention at the
currency market to relax the turbulence in their financial market.
Last Thursday (10/9) Wall street was
closed positive, Index of Standard & Poor’s 500 was also closed to inch up
by 0.5% to become 1.952.29. In the previous transaction US stock market index
rose by 1.2% while of Dow Janes Industrial Average was closed to inch up by
0.5% to become 16.330.40 while index of Nasdaq Composite rose by 0.8%.
Increase of index at Wall street was
elevated by recovery of Apple shares which was closed with increase of 2.2% as
Apple introduced a new product. Movement of a number of other shares which
influenced US stock market were among others Biogen Inc. increasing by 3.2%,
Giled Scineces Inc 3.5%, Pfizer Inc 2..1%, Wynn Resort Ltd down by 4.67% and
Krispy Kreme Doughtnuts down by 12%.
US economy was struggling to recover
from adversity. Recovery of wages level trigged house hold consumption, resulting
in demand for credit among America citizens.
The Fed noted that consumer’s credit
rose higher than projected. The growth was buoyed up by credit card and
automotive credit. Per July 2015, consumer’s credit rose 7.7% (y o y) to become
USD 19.1 billion, Mean while the estimated median in survey run by Bloomberg
only predicted consumer’s credit worth USD 18.8 billion.
Non revolving credit which were for
automotives and education soared up by 7% annually in July but the increase was
lower than growth in June 2015 which was 9.4%. Mean while revolving credit
which were mostly credit card increased by 5.7% in the first 7 months against
same period last year. In the previous month revolving credit soared up by 10%.
As a whole, consumer’s credit showed
increasing trend which was an indicators of household spending level. As
footnote, household expenditure contributed 70% to US economy. Improved US
economic data would generate positive sentiment to increase of FFR. Somehow the
Fed also considered US unemployment level which, inspite of being down by 5.2%
was not enough to justify of FFR increase.
Goldman Sachs Group Inc estimated
the Government of China had spent USD 1.5% trillion Yuan or USD 236 billion to
support their Stock market since correction 3 months ago. A special team had
spent around Yuan 600 billion in August alone.
Investors feared that China might
stop interventions the way it happened in Hong kong and the USA. Index of
Shanghai had dropped by 41% since June erasing market value at USD 5 trillion
as investors released their shares amidst worsening economic slowdown.
To keep the stock market from
sinking any deeper, the Government threw USD 400 billion of fund to buy back
shares, prohibit sales of shares by shareholders while Government companies
were obliged to buy shares. Downfall of the stock market in addition to sudden
devaluation of Yuan had rocked the boat Index of Shanghai sanjk deepest in the
past 2 weeks. China Securities Finance Corp, the body in charge of supporting
price of shares no longer bought shares unless there was volatility which was
unusual or systemic risk.
From the above picture it was apparent that
chances for IHSG to strengthen during closing session (11/9) was quite good and
might be closed at around 4.375 – 4.415 while this week IHSG had the chance to
strengthen to around 4.450 – 4.500 in line with public positive response to
Government ‘s Economy Policy Package Chapter I.
The Economic policy Package would
uplift consumer’s purchasing power which happened to drop in the previous
months. This was visible in BI’s record reckoned purchasing power Indonesian
middle class which had been dramatically reduced. This was seen in survey of
retail sales by BI in July and August 2015. The latest release of Indonesia’s
monetary authority showed that monthly Real Sales Index in August 2015 was
predicted to be minus 6.1% (m t m) against July 2015 which grew thinly at 4.9 %
to become 197.4.
IPR reflected development of retail sales in
Indonesia. If the IPR outcome showed slow growth or even minus, it is reflected
down turning people’s consumption. Slowdown of retail sales in August 2015 was
expected to happen to certain categories, food or non food. Compared to July
2015, sales of spare parts and accessories would be minus 0.4%. Besides minus
sales growth would also be posted in Food & Beverages and Tobacco 7% as
well as IT equipment minus 1.4%.
The products showing sizable growth
in July 2015 (y o y0 were F & B, tobacco, also IT equipment. High demand
during Idul Fitri was the propeller factors. As a result of less sales growth
in August 2015 retailer optimism was low, which was visible in Index of Sales
Expectation in the next 3 months which dropped from 125.3 to 121.5.
In the next 6 months, Index of Sales
Expectation only inched up from 132.7 to 132.9. Global economic slowdown and
Rupiah deprectaition coused public demand to drop. The condition was clearly
seen in core inflation data in August 2015 which was at the level of 4.92% or
below 5%. Household consumption in Q II dropped to 4.49% against previous
quarter at 5.01%. After Idul Fitri, household consumption was still notably
low.
In the following month, predictably
the El Nino phenomena would inflation level which would been burden retail
sales. Only by year end there would be new power to increase sales. After
November inflation was again normal to below 5% so people’s purchasing would be
uplifted.
Economic growth in Q III was
projected to move toward 5% although people’s purchasing power was pressure.
Growth could be attained provided Government’s expenditure was maximized. Hope
full Economic Policy Package Chapter I could elevate people’s purchasing power
because consumption constituted 56% - 57% to growth. One of to propel industry,
this was to keep labor-intensive industry running and to prevent dismissals.
Meanwhile the Ministry of Energy and
Mineral Resource would revise Regulations on Permit extention for mineral and
coal mines. The Regulations to be revised was PP No, 77/2014 on Minerba
business. This Agenda was part the chapter I Economic Policy.
According to the Minister of Energy
and Mineral Resources Sudirman Said, one of the points of revision was
application for permit extention of mining permit at least 10 year and 2 years
before the contract expired. Among the mining companies to be advantaged by
this Regulation revision was giant miner companies like PT Freeport Indonesia.
Their mining, like PT Vale Indonesia and PT Newmont Nusa Tenggara had high
degree of risk.
Beside Vale, Newmont and Freeport,
there were three or four other mining companies who could benefit from the
revised policy. The Government planned to accomplish the revision this very
year. The Government would have the
authority to extend permit although the contract had not expired.
Before extending permit, the
Government would evaluate wise extention of the permit to keep it within the
corridor of Low No.4/2009 on Mineral and Coal. The technical specification
would be responded positively because it means assurance for a long term
business.
The Government had just announced
extention of mining permit with assurance of abundant raw mineral reserves, for
example 30 years.
The first Policy was PP/2013 on the
management of Social Insurance Asset whereby to increase investment in the form
of land, building or land + building from 5 percent to 30 percent.
Secondly, OJK Regulation which
changed SE BI No 13/6/DNP dated February 2011 on the Guild line of Asset
Calculation (ATMR) for subsidized mortgage with BBTN as under taker.
Thirdly was Government Regulation on
Direct Lending for BUMN who was assigned by the Government. The Housing sector
was related 170 other industries and the Housing sector had higher potentials
to create jobs. If those sectors were promoted, it would mitigate economic
slowdown now happening.
PP No. 15/2004 on Perumnas Mortgage
to enhance their role in developing cheap housing for people was accomplished
and was now waiting to be signed by the President. The Government planned to
revitalize the role of Perumnas and to regain their mission to procure houses
for the low income people. (SS)
Business New - September 16, 2015
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