US Fiscal Crisis Has Boediono Cautious
Indonesian Vice President Boediono called on the country’s market players and policy makers to remain cautious on concerns that the fiscal crisis in the United States shows no signs of recovery.
“We remain optimistic that Indonesia will continue advancing, but we should also stay cautious,” Boediono said on Wednesday.
Boediono who was previously the governor of Bank Indonesia, the central bank, said that Indonesia’s economic indicators remain good, and better than most countries. However he warned that there are external factors that should be watched carefully to maintain economic growth.
On the fiscal crisis in the United States and prolonged debt crisis in Europe, he said: “We are wading through [economic] uncertainties, the weather is unclear.”
“The fiscal cliff was avoided [but] there was drama,” he added.
On Wednesday the US House of Representatives passed a bill to raise taxes for the wealthy and to delay spending cuts.
“After the House of Representatives passed the bill, there was some sense of confidence,” said Jeff Tan, a director at Sinarmas Asset Management. However, he said this was only a temporary fix for the United States and that the positive sentiment in the global market would only last for a short period of time.
The manufacturing index in China helped the sentiment for coal-related stocks in Indonesia on hopes of recovering coal demand from China, Jeff added.
Unilever Indonesia, the largest producer of home care and personal care products, rose 4.8 percent to Rp 21,850, while Bank Mandiri, the largest bank by asset, gained 1.9 percent to Rp 8,250.
Several brokerage houses voiced their optimism that the local stock index would continue its upward momentum on the back of strong consumption and investment activities. J.P. Morgan expects as much as 15 percent earnings growth in Indonesian companies.
Boediono also warned that the European debt crisis would not end anytime soon. The political system in the euro zone has disabled them from making any quick decisions to save the region from debt crisis.
He assured that the government, the central bank and other authorities in the local market had prepared contingency plans should the global economic slowdown worsen. He said that Bank Indonesia had handled the global financial crisis back in 2008 quite well, and that Indonesia should learn from that experience to anticipate a similar future shock.
Agus Martowardojo, the finance minister, said that the impact of such shocks usually affects liquidity in the stock market, exchange rate and exports.
“However, one important factor is investors’ confidence. We have to maintain investors’ confidence in Indonesia’s economy by keeping the economy strong, healthy and sustainable,” Agus said.
Boediono said the government will ensure a prudent fiscal policy to keep the economy going while continuing to promote structural reform and integrity. He said the formation of the Financial Services Authority (OJK) will supervise banks and non-banking financial institutions to improve Indonesia’s financial industry.
Muliaman Hadad, the chairman of the OJK board of commissioners, said that his institution was ready to supervise the stock exchange.
“We are ready to start our duty in supervising the Indonesian capital market,” Muliaman said.
Indonesia’s benchmark stock index rose 29.79, or 0.7 percent, to 4,346.48 on Wednesday. The market reopened its trading on Wednesday and extended its 0.8 percent gain on the last day of trading in 2012. The main stock gauge made a 13 percent gain last year.
Gainers beat decliners by 141 to 103. More than 3.66 billion shares, valued at Rp 4.72 trillion, changed hands on the Indonesia Stock Exchange (IDX). Domestic investors had solid dominance on Wednesday’s stock trading with foreigners only contributing 32 percent of the total trading value. Foreign investors bought Rp 82.7 billion ($8.6 million) in shares more than they sold.