Market euphoria over
Jokowi : How long will it last?
Winarno Zain ;
A graduate of the School of Economics at the University of
Indonesia, A commissioner of a publicly listed oil and gas service company
|
JAKARTA
POST, 14 Juli 2014
Almost
Rp 1.6 trillion (US$138 million) worth of foreign funds flowed into the
Indonesian stock market on July 8, the day before the presidential election,
pushing up the benchmark Jakarta Composite Index (JCI) by 0.7 percent to
5,024. It surged by 1.7 percent the day before.
The
shares of Bank Mandiri, the biggest Indonesian lender, surged 2.3 percent,
with 102 million shares changing hands, more than three times the daily
volume average. The shares of Bank
Rakyat Indonesia (BRI) jumped by nearly 6 percent, with volumes twice the
daily average.
In
the afternoon, the trading share price of both banks managed to achieve
historic levels, before pulling back. The rally also extended to the rupiah,
which has been strengthening since July.
Indonesia’s
one-month non-deliverable rupiah forward trade offshore rose 0.1 percent to
Rp 11,569 per dollar, extending its rally since July 3 to a cumulative 3.7
percent increase.
The
day after the election, on July 10, the market continued its rally with the
JCI ending at 5,098, up by almost 1.5 percent. Meanwhile the rupiah
strengthened to Rp 11,549.
At
the same time the Finance Ministry announced it had raised Rp 15 trillion
from its bond auction exceeding its Rp 10 trillion target. Investors
submitted bids 2.2 times the amount offered.
Previously,
Indonesia raised ¤1 billion bonds from the market, the first time the
government raised its euro denominated bonds.
It
took advantage of high liquidity in euro area, resulting from the loose
monetary policy of the European Central Bank (ECB). Investor enthusiasm was
reflected in the amount of bids that were seven times of the amount offered.
The
enthusiastic reception of investors to Indonesian stocks and bonds reflected
their confidence that the election of Joko “Jokowi” Widodo as president, as
predicted by most pollsters, would pave the way for the Indonesian government
to push further reform.
The
market considers Jokowi business-friendly, especially given his actions
during his short spell as the Jakarta governor when he revamped the
bureaucracy and pushed for infrastructure development.
The
euphoria of the market on Jokowi’s presidential win based on quick counts may
not last long, however. As Prabowo Subianto, his rival in the presidential
election, also claimed victory, there will be uncertainty and tension for the
next 11 days until the General Elections Commission (KPU) officially declares
the winner.
The
market is also aware that the euphoria is largely based on political
sentiment from the election of Jokowi who is considered more market friendly
compared to Prabowo. Once the political euphoria subsides, the market will
face the hard truth of Indonesia’s economic fundamentals.
The
economy is struggling to restore its growth, to revamp its broken
infrastructure, to fend off crushing subsidies and eliminate current-account
deficits that have battered its currency for several months.
Even
if the succession goes smoothly and Jokowi becomes the seventh president of
Indonesia, the market realizes that formidable challenges will immediately
confront him in moving the economy forward.
The
cabinet that he must immediately form will be influenced by his campaign
pledges.
A
solution for the pressing issue of fuel subsidies cannot wait. During the
campaign, Jokowi agreed to cut fuel subsidies gradually but did not elaborate
on how he would do it. In the last presidential debate, when the candidates
discussed energy, the issue of reducing fuel subsidies was not touched on at
all by the two candidates.
It
was a glaring absence, since most of the people would have liked to know
where each candidate stood on this issue. For Jokowi as president, this will
be the most politically risky and tricky issue. The market will watch closely
how he deals with this.
The
market apparently believes that Jokowi as president will pursue structural
reforms to boost economic growth. But the business community will look at how
he deals with labor reform.
The
minimum wage has been a contentious issue between employers, labor unions and
the government. During his campaign, Jokowi boasted that he, as the Jakarta
governor, increased the minimum wage by 10 percent to Rp 2.4 million ($209) a decision that won him support from labor
union leaders.
But
labor union leaders have stated their determination to press ahead with their
demands for further higher wages. Businesses have complained about rising
labor costs, because it could undermine their competitiveness in the
international market.
Will
Jokowi as president continue to accommodate these labor demands?
The
economy is not only facing still weak commodity prices and exports. The US
Federal Reserve has just announced it will stop its asset purchase program,
known as “quantitative easing” in October 2014, the same time the new
Indonesian government takes over.
This
will further tighten global liquidity and may trigger capital outflows from
Indonesia, weakening the rupiah. The new president must be ready to face
these challenges. ●
|
Tidak ada komentar:
Posting Komentar