Jakarta. Indonesian banks, bonds and stock market will close for five days from Thursday to Monday as Bank Indonesia stops its settlement operations for the Idul Fitri.

Bank Indonesia, the country’s central bank, will stop its real-time gross settlement system — which caters to large transactions above Rp 100 million ($7,500) between banks — between July 16 and 20, the central bank said in a statement. The central bank will also close the script-less securities settlement system during the holiday period.

Bank Indonesia’s will also cease open market operation — in which it buys and sells government bonds and foreign currencies — during the period.

Bank Indonesia will be back with a limited service on Tuesday, July 21, providing only cash for Indonesian lenders and operating its rupiah deposit and lending facilities.

The central bank is set to return to full operation on Wednesday, July 22, with 60 minutes extended services period for the real-time gross settlement and script-less securities settlement systems.

Cash demand

Indonesian banks will continue providing services for its customer through 24 hour ATM machines, for withdrawing cash, transferring money, paying bills and other services. The lenders will also maintain operation of their online services.

Bank Indonesia estimated Indonesians will need cash of around Rp 119 trillion to Rp 125 trillion during Ramadan and the Idul Fitri celebration this year, compared to last year’s Rp 125 trillion, in order to met demand of people who come to their hometowns.

Some 20 million Indonesians are expected to travel around Idul Fitri this year, up 2.5 percent from last year, according to data from the Transport Ministry. They would need cash for retail transactions in the regions, which remain lack of card-based payment system.

Still, the customers could rest assured on cash availability as the country’s largest lenders come loaded with their preparation. Bank Mandiri, the biggest state-owned lender by assets, had prepared Rp 36 trillion during the period. Its closest rival Bank Rakyat Indonesia had prepared Rp 27.6 trillion ready in its 21,000 automated teller machines and operation units across the country.

State owned Bank Negara Indonesia, a state-owned lender, readied Rp 60 trillion in its 14,171 ATMs across the country. Meanwhile, Indonesia’s biggest private-owned lender by assets, Bank Central Asia, had prepared Rp 50 trillion, up 5 percent from last year’s Idul Fitri preparation or Rp 48 trillion.

Holiday mode

At the Indonesia Stock Exchange, traders seem to have taken a laidback approach ahead of the holiday. The Indonesia Stock Exchange (IDX) will close trading between Thursday and next Tuesday.

Satrio Utomo, a stock analyst at Universal Broker, said most local investors would reduce their trade this week, having closed their major positions last Friday.

“Majority of investors has taken into account that [cash settlement from Friday transactions would be done] Wednesday. So, selling pressure has declined and there is sign of rebound,” Satrio said.

Indonesia’s main stock gauge climbed by 0.72 percent to 4,893.92 on Monday. Approximately 3.5 billion shares — valued at roughly Rp 3.56 trillion — changed hands on the local bourse on Monday, which is about 43 percent lower than the daily average trading of about 6.2 billion shares, worth Rp 6.2 trillion.

Foreign investors accounted for 44 percent of the trade, selling Rp 110 billion more than they bought, data from IDX showed.
Universal’s Satrio said that traders would make a move on any sign of economic improvements when Bank Indonesia announce its benchmark rate on Tuesday and the Central Statistics Agency report June’s trade balance on Wednesday.

Hans Kwee, a director at investment consultant firm Investa Saran Mandiri said that the stock market is predicted will be relatively quiet towards the holiday season.

Some of the traders who remain on the market on Monday seek to capitalize on “euphoria from Greece and China,” Hans said.

Leaders of the European Union countries have agreed on a third bailout for Greece, giving an option for the Mediterranean country to stay in the Eurozone. Meanwhile, Chinese shares continued to climb again on Monday as companies resumed trading, coupled with the Chinese government’s intervention.

The latest developments have decreased uncertainty in global market and boosted investors appetite for buying stocks, Hans said.

GlobeAsia

The post Banks, Markets Prepare for Idul Fitri Holiday appeared first on The Jakarta Globe.

Jakarta. Indonesia’s economy grew at the slowest pace in more than five years in the first quarter, feeling the effects from weak exports and lower crude oil prices.

Gross domestic product rose 4.71 percent in the January-March period from the same quarter in 2014, the Central Statistics Agency (BPS) reported.

Growth slowed from 5.01 percent in the fourth quarter of last year and was the weakest since the 4.12 percent pace in the third quarter of 2009. On a quarter-on-quarter basis, GDP rose 0.18 percent.

BPS chief Suryamin said that economic growth was affected by declining economic growth of Indonesia’s export-target countries and the weakening price of crude oil.

“Low commodity prices have an effect on provinces’ GDP, which will also affect the national economy,” said Eric Alexander Sugandi, an economist at Standard Chartered Bank in Jakarta.

By the source of expenditure contribution, household consumption — which contribute to 56 percent of the GDP figure — grew 5.01 percent in the first three months of the year from the same period in 2014.

It was the same pace of growth as in the fourth quarter of 2014.

Investment, contributing to 32 percent of the economy — picked up pace, growing by 4.36 percent from 4.27 percent. Government spending growth slowed to 2.21 percent from 2.83 percent.

According to the previous BPS data, exports slumped 12 percent, while imports declined 15 percent.

Sector-wise, information and communication grew the fastest (10.53 percent), followed by financial service (7.57 percent), business services (7.36 percent), and transportation and storage service (6.35 percent).

Car sales

Noergadjito, secretary general of the Association of Indonesia Automotive Industries (Gaikindo), said Gaikindo now expected its members to sell 1.1 million cars this year, down from the previous target of 1.2 million.

The manufacturers sold 1.2 million cars last year, stoking confidence that Indonesia could exceed Thailand as the largest car market in Southeast Asia.

“It is a bit abnormal, which is why we’re more careful about making the forecast,” Noergadjito said on Monday. “Whether we revise again or not in the middle of the year, it will depend on the macroeconomic situation, namely inflation, interest rate and fuel prices.”

Economic growth is one factor that affects car sales, apart from other macro conditions, like inflation and fuel price, two main reasons that would generally hold off sales.

The rupiah dropped 0.5 percent against the dollar to 13,044 on Tuesday. It is the biggest decliner this year among 11 Asian currencies tracked by Bloomberg.

Market reactions

Indonesian stocks, surprisingly, continued its gain on Tuesday, climbing 0.37 percent to 5,160.308. Trading volume stood at Rp 5.73 billion ($439,756) with a value worth Rp 6.2 trillion.

Foreign investors contributed to 46 percent of the day’s trading, buying Rp 454.9 billion more shares than they sold.

“There were also some [market] players that held their positions because they think it was still undervalued,” Eric said.

Growth target

Having observed the first quarter growth, one economist said the government should revisit its 5.7 percent growth target for the entire year, as set in the revised 2015 State Budget.

“The 5.7 percent target is really hard to reach. We need more than 6 percent growth [in the following quarters of 2015] to reach it. The number has become unrealistic,” Eric said.

President Joko Widodo hopes to propel the economy back to its strong annual growth rate of 7 percent, amid ambitious plans to boost infrastructure development, including the construction of new seaports and roads.

“We need a reality check. The [Joko administration’s] first year in office is a consolidation year, meaning it has to be more realistic. We need to speed up infrastructure development first,” he added. “A fast-growing economy can be the second year’s target.”

Q2 hopes?

Responding to Tuesday’s data, Bank Indonesia released a statement saying it expects the country’s economy will start to pick up in the second quarter, when government spending is projected to increase.

“Government spending will become a stimulus for economic growth. Investment growth is also expected to be higher in the second quarter and afterwards, as government spending will also be higher for infrastructure projects,” said Tirta Segara, an executive director at Bank Indonesia.

Tirta added, however, that the central bank is aware of the risk that economic growth may reach the lower end of the target of 5.4 percent to 5.8 percent.

“The scale and the speed of infrastructure project realizations will determine the possibility of reaching the government’s target, along with strong consumption and gradually better export,” Tirta said.

Ryan Kiryanto, chief economist at state-controlled Bank Negara Indonesia, urged the government to refrain from making a decision that would be “unfriendly” to the market and may squeeze companies’ earnings amid the slowdown.

The chairman of the Indonesian Young Entrepreneur Association (Hipmi) called  on the government to help provide a conducive environment for the manufacturing sector to grow, create employment and ultimately stimulate the economy.

He also criticized Joko’s administration   for failing to complete the tenders of infrastructure projects six months after entering office.

“Fiscal stimulus should be in the focus, though impact will not be felt in the near term. Furthermore, coordination between ministries remains a problem,” said Dian Ayu Yustina, an economist with Bank Danamon Indonesia.

“Talks of a cabinet reshuffle have surfaced, considering the president has the [right] to immediately replace [ministers] who do not perform. But we do not think that this is a good idea since it could further delay spending.”

“The government needs to be more assertive to the political distortion and focus more on the economic policies. This is to improve people’s confidence that has been recently declining due to the unpopular policies taken,” Dian said.

GlobeAsia

Further coverage:
Editorial

The post Indonesia’s Economy Crawls at Snail’s Pace appeared first on The Jakarta Globe.

In order to significantly boost economic growth, economists point to accelerating development of infrastructure projects. (Antara Photo/Joko Sulistyo)

Jakarta. Leaders from across Asia and the rest of the world are convening for the World Economic Forum on East Asia in Jakarta, and they come at a time when Indonesia has made significant strides in its economy, with room for improvement.

Gross domestic product in nominal terms has grown more than threefold in the past 10 years to become an almost $1 trillion economy, and within reach to meet former president Susilo Bambang’s goal to be among the top 10 economies in the world by 2025.

Lana Soelistianingsih, a University of Indonesia economist, said Indonesia’s economic growth was “pretty significant” in the past 10 years. She mentioned some indicators, including how Indonesia’s banking sector had successfully dodged the global crisis in 2008, higher earnings per capita, and a lower unemployment rate.

“If we look at the earnings per capita, it has been better and will keep progressing, from only $300 to $3,000. Of course, things like these can’t be ignored,” she said.

Indonesia’s unemployment rate stood at 5.94 percent of the country’s labor force of 183 million people in August 2014, according to data from the Central Statistics Agency (BPS), down from 11 percent in 2005.

Indonesia’s unemployment rate fell rapidly amid fast economic growth in the past decade, but then started to slow from 2011 due to slower economic expansion.

As millions more Indonesians enter middle-income status, that should help boost growth further. Economic indicators such as car sales — projected at 1.2 million this year — show that consumer spending remains robust. Foreign direct investment also remains strong, and Indonesia’s stock market is setting record highs.

Hurdles

But Lana said the government still had to face many challenges ahead as corruption cases keep piling up and little is done to boost infrastructure spending. The government needs to focus on other areas of Indonesia, such as the eastern region, to help expand the country’s economy.

“Public infrastructure, the ones that are supposed to be free for the public, haven’t shown any progress. Many companies also haven’t gotten enough electricity. The development is clustered on Java, as is with urbanization. There’s an imbalance in national development,” Lana said.

She expressed disappointment with how infrastructure development was kept on hold due to various reasons.

“Infrastructure is the key,” she added. “Once infrastructure development is on its way, then [our economy] can grow.”

Slower economic expansion is not entirely a bad scenario, according to M. Chatib Basri, a former finance minister under the Yudhoyono administration, adding that a broader perspective was needed to view such issues.

Indonesia, India and China were the only countries among the Group of 20 nations that managed to grow at more than 5 percent in 2014. By comparison, Singapore’s economic growth was 2.9 percent in 2014, South Africa 1.8 percent, and Turkey at less than 5 percent.

“For me, 5 percent [economic] growth was OK because other countries grew less than that,” Chatib said, noting that Brazil’s economy faced challenges such as a weakening currency and slowing economic growth.

“My point is, economic growth tends to be slower in the future. We don’t need to expect too high at 6 percent, let alone 7 percent, in a short period. It merely shows that we’re in a state of denial about the global condition. Be patient. Fixing the fundaments in stages may lead us to a more sustainable 7 percent [economic] growth.”

Lawrence H. Summers, president emeritus of Harvard University and a former US Treasury secretary, was quoted as saying by the International Monetary Fund, which held its semiannual meeting in Washington last week, on its website on Friday that Asia should expect much slower economic growth as the region was likely to revert to levels of average growth.

“There is a tendency, particularly in discussions of China, but also in discussions of Asia, that there is a presumption of continuity. That is, maybe the countries will continue to grow at the abnormally rapid rate that they have,” Summers said.

The government is pushing to build more seaports to further facilitate trade between islands. (Antara Photo/Sahlan Kurniawan)

Slow growth

Indonesia’s economic growth slowed to 5.02 percent in 2014, which was the slowest pace in five years, and the government expects that growth to be at more than 5 percent this year. President Joko Widodo is embarking on the some of the same plans as his predecessors in trying to boost economic growth, such as a focus on infrastructure spending.

“I think if we look at the last 10 years, there are two angles from which we can look at Indonesia’s development,” said Sushant Palakurthi Rao, senior director and head of Southeast Asia at the World Economic Forum.

“One is from the government side, and it’s been clear in the last decade that democracy has been firmly anchored into Indonesia that’s been a very positive development. And economically as I explained, we have observed that Indonesia has steadily improved competitiveness and become one of the successful economies in the entire report in improving in very large steps, so that’s been largely positive. Now, however, we have to remember that Indonesia is not immune.

“It’s not a country in isolation,” Rao went on. “It is impacted by global development such as energy prices, geopolitical conflicts like ISIS [Islamic State] and the global wave of extremism. So now the question would be, how does Indonesia build on this decade of success and prepare itself for the next 10 years of growth, which would be essential for a country which is demographically young. There would be jobs that need to be created for the young population that’s coming in. Also to become a stronger competitor in an environment of regional integration.

“This is the tipping point for its next wave of growth. What we have observed in the last months in terms of the commitments of President Jokowi, things like that are going to be facilitators for Indonesia to grow other industry,” Rao said.

“The lifeline of an economy is a strong infrastructure base. It will create the competitive environment for more companies to invest and manufacture in Indonesia as opposed to just buying commodities.”

Consumer spending, which accounts for about half of economic activity, so far has helped growth even as other sectors of the economy such as exports lag.

Prices for commodities such as coal, copper and gold have dropped significantly in the past few years, and that means fewer earnings for companies including state-owned miner Aneka Tambang and Freeport Indonesia that do business locally and abroad.

Expanding sectors

Some economists point out that in order to develop the economy, Indonesia must expand its manufacturing and services sectors. Companies such as Samsung Electronics have expressed interest in investing more, but are looking for tax breaks from the government as an incentive.

Whether the government decides to further fast-track policy reforms on investment remains to be seen during Joko’s administration. It has tried to make investment easier, with the Investment Coordingating Board (BKPM) reducing the process for investors to set up a business.

“Indonesia is one of the most respected leaders in Asean [the Association of Southeast Asian Nations], as well as the Asia and Africa region as a whole, but the past 10 years have been a repeat of the 1970s and 1980s, when we repeatedly missed the momentum,” said David Sumual, the head economist at Bank Central Asia.

“There was the oil boom in the ’70s, but we missed out on that. We’re typically very weak in rolling out structural reforms. The government has only put out a clear signal on this initiative this year. Hopefully, this will be followed by other reforms, such as infrastructure development, closing the gap between regions. In the past 10 years, we have been complacent. We’ve missed the momentum.

“Our growth has been one of the highest, but it’s been mostly driven by raw commodity exports. Going forward, we must develop our manufacturing sector. Developed countries grow through their manufacturing sector, before entering the service sector. Our economy is still in the primary sector right now, it’s not even touched the secondary sector,” David said.

“Right now, many businesses are eyeing our market for its potential. We have to monitor our business climate to attract both foreign and local investors. Local investors must also grow along with foreign investors. [South] Korea, China and Japan — all of them sought to attract foreign investment and eventually, they spun off the investment as their own.”

Challenges remain for the economy in the face of a slowdown among large emerging and developed nations alike. Australia, like Indonesia, faces challenges in its mining sector as fewer shipments of commodities such as iron ore and coal to nations such as China mean lower commodity prices. The rupiah is down 4 percent against the US dollar this year and continues to weaken, and the nation faces a current-account deficit for a third year.

Hariyadi Sukamdani, the chairman of the Indonesian Employers Association (Apindo), says Indonesia needs to act, otherwise opportunities will be lost.

“We have been wasting time so far. We missed many good opportunities for the last 10 years due to the unfocused government,” he said.

He also said the government had lost momentum in the past, devising many plans by executing them poorly.

The Yudhoyono administration in 2011 touted its ambitious Master Plan for the Acceleration and Expansion of Indonesia’s Economic Development, or MP3EI, which called for, among other things, the construction of new ports, roads and railways. Few of those projects are under development today.

“The MP3EI — which featured dozens of infrastructure, energy, mining and agricultural projects that would each have a positive impact on the economy — is a good example,” Hariyadi said. “Port Cilamaya, too. It was such a good plan but then canceled.”

For the past 10 years the government has shown “unprofessionalism” and “inconsistency,” he said, adding that all the gestures made by the government to lure foreign investment would be ineffective.

“A thousand events like the WEF won’t do if the government is not serious,” he said. “The effectiveness of such an event is really up to us, to our government. It could be something if we’re consistent, but it could also be merely a trivial ceremony.”

GlobeAsia and the Jakarta Globe are media partners of the World Economic Forum on East Asia.

GlobeAsia

Further Coverage

Editorial: Govt Must Go Easy On the Economy

The post Govt Action, Not Talk, Is Needed to Further Indonesia’s Economic Growth appeared first on The Jakarta Globe.