MARKET EXPECT INTEGRATED ECONOMIC POLICY IS ALSO WELL BY EXECUTION

Amidst uncertainty of global economy climate and adverse domestic economy, now market players were expecting the government to run Integrated Economic Policy; not only sound by quality but also well by execution to win back market’s trust. Rupiah being under pressure and IHSG not being in good shape caused market anxiety of what the Government plant to do next.

Moreover to think that global economy was also still unimpressive, that year 2016 seemed not to be the momentum yet for growth since China’s economy was contracting, in their latter report entitled “Down revision of Economic Outlook 2016” economic growth of countries combined in G-20 next year was 2.8% lower that the predicted 3.1%. China was the reason why revision was deemed necessary.

Moody’s saw that Chin’s economy would only by 6.3% less than the previous projection of 6.5%. Moody’s Senior Vice President Maria Diron states that China’s slower growth rate made commodity prince had increase in the near future.

A long period of low commodity price would cause from investment and export of G-20 countries to lesson. The policy adopted by china today jack up their export was a policy to compensate economic slowdown in china.

As economy of the word including China weakened, Indonesia as member of G-20 would be affected. Mood’s predicted Indonesia economic growth next year would be in the range of 4% - 5%, the some as predictions for 2015.

All in under the circumstances Rupiah was tormented. The turbulence was so terrible Rupiah was pressed down to Rp.14,000 per USD as China devaluated their Yuan. The world was worried that China’s step would trigger a currency war that would lead to Further instability.

Rupiah weakening would jack up inflation, since Indonesia’s dependence on imported products, especially raw materials was still high.

In a free forex regime, Rupiah was a currency free to be traded. For that matter, the monetary authority must work hard to interfere the money market to keep Rupiah up.

To again strength in the market, forex reserves was the resource to rely on. However the market needed more than just reserves. In the crisis, even forex reserves had lost its benefits. Now the money market was governed by rumors.

In view of the instability of the money market, the market needed sound measures by the Government such as integrated economy policy as expected by the market.

Hence it was more than just the financial sector that called for attention, but also the real sector. To be exact the financial sector, the real sector and of course Law Enforcement to chase tax avoiders, and other fraudulence and law violations.

A comprehensive and integrated economic strategy, which was pro-people was now indispensable and really being awaited for.

Governor of BI Agus Martowardoyo stated that Indonesia had multi layer defense system in facing global pressures of today. He said that today Indonesia had enough forex reserves to safeguard Rupiah. In July 2015 Indonesia’s forex reserves was posted at USD 107.6 billion which was in good DSR and enough for 3 months of import.

Not just forex reserves, Indonesia was also protected by Second Line Defense System (SLD), ready to function as safeguard to national economy. Among the SLD instrument was Bilateral Swap Arrangement (BSA) which was reserves system in case of undesired condition. BSA would secure liquidity, prevent crisis and overcome crisis.

The BSA fund were among others from Chiang Mai  Initiative Multilateralization (CMIM) an agreement with Japan, China and South Korea amounting to USD 240 billion; from Japan USD 22,76 billion. Beside Forex Reserves and BSA, Indonesia also had other safeguard system to anticipate crisis, such as Deferred Drawdown Option (DDO) or Standby Fund, and Bilateral Currency Swap (BCSA). BSA was emergency fund in case of undersirable condition, while DDO was bilateral collaboration to keep development running amounting to USD 5 billion.

The BCSA fund would be used for fostering bilateral trading agreement and to strengthen financial collaboration between the two countries. Today BI had BCSA ties with China and South Korea. The amount was Won 10.7 trillion or Rp.115 trillion, while with the Central Bank of China (PboC) the amount was Yuan 100 billion or Rp.175 trillion.

Global economic uncertainty had forced the Government to accelerate formation of four  Stimulus Policy for Indonesia’s economy. The four economy package were: fiscal policy, investment deregulation, energy policy, and food strategy. Discussion on policy package was focused on policy investment, since allegedly there were 154 rules which were allegedly a hindrance to capital inflow.

The Coordinating Minister of Economy said he would aggressively discuss the four policy packages. The Policy was designed to enhance investments at large  scale. Some were revised, some were totally changed and encompassed 154 rules regarded as contra-productive in the present condition.

About low budget absorption, the Minister of Internal Affairs Tjahjo Kumolo would “Stick and carriot” approach to provincial Governments whose budget absorption was low. Regions whose budget absorption was extremely low, their portion of budget would be reduced or the allocation be postponed.

The Coordinating Minister of Politics, Law and Security Luhut Panjahitan underscored that he would safeguard the nation on the security side because security and political stability was important to economic development.

The winds of change suddenly make prospect of Indonesia’s economic recovery better when the PAN political party decided to join the Government coalition group. PAN was determined to join forces with the Government to support the Government to realize their programs. The decision was made for the sake of the Republic of Indonesia, not to serve the private, party, or group interest.

PAN’s decision to join the Government was a plus point to the Nation’s effort in overcoming problems that clawed the nation. With PAN joining the Government, the Government was now holding the key in Parliament support and decision making in executing development programs.

The Moneymarket

Now USD was strengthening against most of the world’s currencies on Thursday (3/9) because ECB maintained their benchmark rate and increased limit for issuance of shares. ECB decided interest rate for refinancing and fixed deposit to remain at 0.0.5%, 0.03% and 0.2%.

Governor of ECB Mario Dragi announced the limit for share issuance to be increased from 25% to 33%. This would enable the Central Bank to buy more single bond being released. Index of USD against 6 main currencies inched up by 0.61% to become 96.408.

US economic data had it unemployment increased from 12,000 against the previous week to become 282,000 way above market estimate of 273,000. Meanwhile index of US non-manufacturing was posted at 59 in August or 1.3 points lower than that of July.

By end of session in New York Euro fell to USD 1.240 against USD 1,1121 and British Pundsterling dropped from USD 1,5259 to 1.5305. Australian Dollar descended from USD 0.7017 to USD 0.7034.

USD was worth ¥ 120.0 lower than ¥ 120,23 before. Against Swiss Franc, USD rose from 0.9736 to 0.9692 but was down against Canadian Dollar from 1.3198 to 1,3281.

Strengthening of USD against currencies of the world had downsized Rupiah. USD glow dominated the scene as the moneymarket responded to employment data. Last Thursday (3/9) Rupiah inched down to Rp.14,170 per USD. BI’s mid rate also showed Rupiah was depreciated 0.23% to become Rp.14,160 per USD.

External sentiments still governed Rupiah. Marketplayers were still waiting for US economic data. On Friday (4/9) last data of monthly joblessness and non-farm payroll was released and was predicted to improve.

The economic indicators could serve as navigator in determining interest rate by the Fed at the FOMC meeting on 16 – 17 September next. In anticipating, marketplayers turned to USD which edged Rupiah down. Moreover there was lack of positive catalyst from the internal. Indonesia’s forex reserves was continually gnawed while inflation was fearfully high above 7%. (y o y) while Rupiah was descending toward Rp.14,200 per USD.

The Fed’s planned meeting would still pose as negative sentiment to Rupiah. Meaning, Somehow there was still chance for Rupiah to strengthen moderately, considering that Trade Balance in August 2015 was positive. Analyst predicted that during closing session last Friday (4/9) Rupiah was closed in the range of Rp.14.125.- to Rp.14,175.- per USD. Meanwhile over the week Rupiah would move in the range of Rp.13,950.- - Rp.14,100.- with tendency to strengthen thanks to the new Government’s policy.

Last week, US strengthened as Vice Chairman of the Fed Stanley Fischer potrayed an impressive picture of America’s economic data which increase speculation of the Fed increasing FFR amidst global economic turbulence. Again, it posed as negative sentiment to Rupiah. It was noteworthy that Governors of central banks all over the world told the Fed that they were ready to cope with FFR increase.

At the World Conference of Central Banks in Jackson Hole last week, message of the governors of central banks to the world stated that the Fed must stop hesitating and the plan at once.

The Capital Market

During opening session on Friday (4/9) IHSG fell by 10 points due to pressures to sell especially by foreign investors. Sentiment from the external was not good enough to help IHSG. During pre opening session IHSG dropped by 0.24% to the level of 4,422.465 while index of LQ 45 weakened by 2,726 point (0.36%) to the level of 750.445.

Regional stock markets weakened except Hong Kong. Low global Market caused investor release their shares. Index of Nikkei 225 dropped by 150.51 points (0.83%) to the level of 18,031.88. Index of Hang Seng Rose by 149.65 points (0.71%) to the level of 21,084.59. Index Composite Shanghai lessened by 6.46 points (0.20%) to 3.160.17. Index of Straits Times weakened by 14.24 points (0.49) to the level 2,892.19.

Mean while Wall Street was closed to inch up during transaction on Thursday (3/9). A number of prevalent factors was still around economic slowdown in China, better report on labor, and the Fed plan to increase FFR.

Previously Government of ECB Mario Draghi signaled there would soon be new stimulus in Europe to bring positive sentiment to Wall Street.

Index of Dow Jones rose by 0.1% to 16,274.76. Index of S&P 500 increased to 1,952.13 and index of Nasdaq rise by 0.35% to become 4,733.50 There were around 7.1 billion shares being transacted; below daily average of 0.8 billion shares.

Fixed traders speculated that the Fed would soon increase interest rate. The probability of interest to be increased by September had dropped to 30% from the previous 38% according to Bloomberg.

Taking external factors into consideration, last weekend (4/9) IHSG was predicted to move flat around 4,425 – 4,460 while this week IHSG was projected to move in the range 4,500 – 4.550 being triggered by positive sentiment from Integrated Economy Policy and recovery of China and Hong Kong stock markets. Market players believe that the Government would come up with various follow up stimuli to energize macro economy.

Apparently foreign corporations or private equity were prudent were now more about increasing investment in Indonesia. Investor rated that valuation in Southeast Asia including Indonesia was quite high. This was unveiled in a survey made by management consultant Global Bain & Company who had made survey on some private equity. Global Bain rated that in Indonesia high valuation was problem.

Moreover before global economic slowdown, Indonesia’s stock market posted notably good performance for quite a long time, so valuation of companies in Indonesia was getting higher and higher.

Bain and Company noted that since 2009, the average price-to earning ratio of companies in Indonesia was seen to increase. In 2014 last, the average price-to earning ratio at the stock market was around 12.5 times. Because of high price expectation, deal between investors and companies seldom happened. However, as shares index was lowered, chances foreign corporate and private equity to invest in Indonesia was once again open, but companies must be able to maintain their good performance.

           

Investors must also observe update value of emitents. For examples Fitch Ratings rating agency who affirmed 4 Government owned banks in Indonesia. i.e. Bank Mandiri (Persero) Tbk (Mandiri). PT Bank Rakyat Indonesia (Persero) Tbk (TN) at stable level. The stable level means national, viability level and senior bond.

In term of national level category AAA was given to Bank Mandiri and BRI this was the highest level ever given by Fitch in terms of national level to Indonesia. The rating was given to emitents or promissory notes with risk of default the lowest compared to emitents or the promissory notes in Indonesia. For BNI the rating given was AA+ and for BTN was AA level. National level at ‘AA’ category showed that the risk of default was low compared to other emitents or other bond in Indonesia.

For BNI the rating given was AA+ and for BTN was AA level. National level at ‘AA’ category showed that the risk of default was low compared to other emitents or other bonds in Indonesia.

Furthermore Fitch rated that level of viability or sub investment of 3 BUMN Bank’s i.e. Bank Mandiri, BRI and BNI was at bb+. The rating reflected profitability being above the average competitors, the quality of asset relatively stable and adequate capital level.

Viability rating given to the three banks was based on evaluation of operational conditional who minimized credit risk by way of stand alone for majority of banks in Indonesia. According to Fitch Ratings banks in Indonesia were facing challenges from global economic slowdown.

But the profile of credit risk of banks had strengthened since late 1980, having gone through various cycles so it seems like the banks would be able cope with economic slowdown today. (SS) 

Business New - September 9, 2015