Indonesia: An industry-led growth economy

Cyrillus Harinowo Hadiwerdoyo, Jakarta | Opinion | Fri, January 04 2013, 9:10 AM

Arwana may not be a household name yet in Jakarta. Yet, the ceramic tiles manufacturer has been a stellar performer in the stock market. At the closing of stock trading on Dec. 28, 2012 its stock price shot up to Rp 1,640 (17 US cents), more than four times its price at the beginning of the year.

In the ceramic tile industry, Arwana is truly an awakening giant. Founded in 1995, the company now boasts a production capacity of over 40 million square meters annually, ranking second only to Mulia Ceramics.

But, with plans to open new factories in South Sumatra, Arwana will be closing the gap with the market leader very rapidly. Arwana currently stands as the 16th largest ceramic tile company in the world with the production cost that can compete with China.

A similar story is also shared by South Pacific Viscose. This rayon company, part of Lenzing Group of Austria, is finishing its fifth factory in West Java that will increase its capacity to 325,000 tons annually, making it the largest single-site rayon factory in the world. The company, founded in the 1980s, was invited by the owner of Bhirla Group of India, which had initiated a factory nearby in West Java by the name of Indo Bharat.

That story can be read in one of the Harvard Business School case studies on the development of such a company in Indonesia.

I will not be surprised if the company will further expand its facilities in Indonesia, given the strong growth of the country’s and the ASEAN region’s economy.

There is no doubt that the demand for textile fibers will continue to climb rapidly.

These two companies do not generally make headlines. It is, for sure, much easier to focus on the automotive industry, led by Toyota and Daihatsu, which has achieved a landmark domestic sale of 1 million vehicles in November 2012. That month, the total sales topped 1.02 million units.

LG and Samsung, meanwhile, have been competing as the leading electronic manufacturers in Indonesia and are expanding their production capacity quite aggressively here.

The domestic demand of electronic products, especially LCD and LED TVs, refrigerators, air conditioners and other household appliances has been growing by over 30 percent annually. All these stories lead to the conclusion that the Indonesian manufacturing industry has been developing at a rapid rate. Arwana has been surging at 23 percent
this year.

Meanwhile, Indonesian car sales have also grown (in terms of units) by around 24 percent. Unilever’s sales have ballooned at a rate of almost 18 percent, while its competitor, Mayora, has been growing by 30 percent.

It is no wonder that the growth of the non-oil manufacturing sector in creating gross domestic product (GDP) has increased to 7.27 percent in the third quarter of 2012, much higher than the growth rate of the overall economy, which grew at 6.17 percent in the same period. At the same time, the growth rate in the first nine months of 2012 of the non-oil manufacturing sector was 6.50 percent, higher than the 6.29 percent in overall GDP growth.

The manufacturing sector has been the largest contributor to Indonesian economic growth at 1.62 percent, followed by the trade, hotel and restaurant sector with 1.22 percent.

While Central Statistics Agency (BPS) data has been showing robust growth of the manufacturing sector, I feel that the performance of the sector has been grossly understated. There are at least four factors that lead me to this conviction.

First, several sectors have been understated. The cement industry, for instance, has reportedly grown at 8.75 percent. At the same time, data from the Indonesian Cement Producers Association reports a 15 percent increase in volume in the first nine months of 2012. The automotive industry has grown by 8.24 percent, although domestic car sales, in terms of units (which is real growth), has grown at a rate of 24 percent.

Pulp, paper and printed products have been reported to suffer negative growth, dropping 4.5 percent in the first three quarters of 2012. At the same time, Asia Pulp and Paper, which has a market share of over 30 percent, has grown at a rate of around 10 percent.

There have been reports of expansion in the corrugated paper industry, which produces carton containers for other industries such as food and beverage, electronic products and others. With such a high growth in the food and beverage and tobacco industry as well as electronic industry, it is highly unlikely that the performance of the pulp, paper and printed products sector is negative.

Second, electricity consumption increased very significantly in 2012. If in the first nine months of 2011, the electricity sector enjoyed production growth of 5.85 percent, it grew by 10.15 percent in the same period of 2012 according to state power company PT PLN. BPS, however, reported the growth rate at only 5.56 percent.

Third, the statistics of GDP have been based on the survey of 2000, when many new industries did not yet exist.

New industries, such as diapers, have been growing very rapidly and currently stand at Rp 6 trillion in value. In fact, Procter and Gamble is currently investing US$1 billion to build a diaper company in Indonesia.

The rapid growth of automotive components might not have been accurately captured by the 2000 survey. So, what may be reported so far by the statistics is more similar to “same store growth”, while the performance of new stores has been largely ignored.

These factors lead me to believe that the Indonesian manufacturing industry has been blossoming at such a rapid rate that other sectors followed suit.

The writer is an Indonesian consultant for Global Source Partners in New York.

Jakarta Post

Economy Is Top Priority: Indonesian President

By Jean Chua | CNBC 

As protests against a U.S. made anti-Islam video continue across the world, the president of Indonesia, which has the world's largest Muslim population, seeks to reassure investors that all steps will be taken to ensure stability and promote economic growth in his country.

Susilo Bambang Yudhoyono, who is in the U.S. to attend the United Nations General Assembly told CNBC's Maria Bartimoro that Indonesia respected freedom of speech and was committed to nurturing democratic traditions.

"We will continue to nurture our democracy because democracy should also bring benefit to the people and stability. And with stability we can build our economy," Yudhoyono said.

Weeks of protests against the controversial film posted on YouTube have resulted in more than 50 deaths so far, Reuters reported. In Indonesia as well there have been anti-U.S. demonstrations, which made the U.S. shut its embassy temporarily in the capital Jakarta on Friday.

"I have to assure you that we are responsible and will ensure that all embassies can accomplish their missions in Indonesia," Yudhoyono told CNBC.

He added that the recent violent protests were because of a clash of different views and the only way forward was to respect different religions and cultures. "We have to live together, in a better atmosphere," he said.

The president added that Indonesia would continue to make the country investor-friendly and could not afford to let social unrest come in the way of growth.

Indonesia has been one of the bright spots in the global economy that's struggling with a synchronized slowdown in the U.S., Europe and China, having grown a higher-than-expected 6.4 percent in the second quarter.

The Southeast Asian nation, the world's sixteenth-largest economy, could surpass Germany and the U.K. by 2030 and become the world's seventh-largest, according to consulting firm McKinsey last week.

While in New York, Yudhoyono is expected to meet up with foreign investors to convince them that doing business with Indonesia will be good for them. "We are building more infrastructure and offer lot of opportunities in agriculture and in industry across the country," he said.

Yudhoyono added there has to be a "dramatic increase" in investment to offset exports, which have been declining, and the best way to do that is to ensure there is stability in the country.

"We are doing our best to maintain growth with greater certainty and predictability. ...We are improving our investment climate," he said.

Yudhoyono expects the economy to keep its momentum into the next year growing at 6.5 percent, driven largely by domestic consumption.

-By CNBC's Jean Chua.

http://finance.yahoo.com/news/indonesia-president-reassures-investors-economy-073533120.html

P.T. Unilever Indonesia

P.T. Unilever Indonesia Terbuka

Company Snapshot

Business Description:
P.T. Unilever Indonesia Terbuka operates in the Soap and other detergents sector.

Sales Analysis.
P.T. Unilever Indonesia Terbuka reported sales of 23.47 trillion Indonesian Rupiahs (US$2.46 billion) for the year ending December of 2011. This represents an increase of 19.2% versus 2010, when the company's sales were 19.69 trillion Indonesian Rupiahs. Sales at P.T. Unilever Indonesia Terbuka have increased during each of the previous five years (and since 2006, sales have increased a total of 107%). Sales of Foods and Beverages saw an increase of 25.7% in 2011, from 4.99 trillion Indonesian Rupiahs to 6.28 trillion Indonesian Rupiahs.




Stock Data
Current Price (9/14/2012): 27,800
(Figures in Indonesian Rupiahs)

Recent Stock Performance

1 Week	-0.7%		13 Weeks	8.8%
4 Weeks	23.8%		52 Weeks	65.0%

P.T. Unilever Indonesia Terbuka Key Data:
Ticker: UNVR Country: INDONESIA Exchanges: JAK OTC Major Industry: Drugs, Cosmetics & Health Care Sub Industry: Cosmetics & Toiletries

2011 Sales	23,469,218,000,000 (Year Ending Jan 2012).	Employees:	6,043
	Currency:	Indonesian Rupiahs	Market Cap:	212,114,000,000,000
	Fiscal Yr Ends:	December	Shares Outstanding:	7,630,000,000
	Share Type:	Ordinary	Closely Held Shares:	6,484,877,500\

PT Unilever Indonesia Tbk Key Developments

PT Unilever Indonesia Tbk Reports Earnings Results for the Six Months Ended June 2012

Jul 31 12

PT Unilever Indonesia Tbk reported earnings results for the six months ended June 2012. For the six months, the company reaped IDR 13.36 trillion in net sales, up 16% compared to IDR 11.46 trillion during the same period last year. The growth in revenue was the result of innovation of its products, both home and personal care as well as food and ice cream segments. The company booked IDR 2.33 trillion in net profit in the first half of 2012, up 12% from IDR 2.09 trillion year-on-year. Product innovation coupled by strong purchasing power helped the company to report strong business growth in the first semester of 2012.

Unilever Indonesia tbk PT Reports Earnings Results for the First Quarter Ended March 31, 2012

May 2 12

Unilever Indonesia tbk PT reported earnings results for the first quarter ended March 31, 2012. For the quarter, the company reported profit attributable to owners of the parent of IDR 1,162,598 million or IDR 152 per basic share on net sales of IDR 6,604,058 million compared to profit attributable to owners of the parent of IDR 985,590 million or IDR 129 per basic share on net sales of IDR 5,668,316 million a year ago. Profit before income tax was IDR 1,553,907 million compared to IDR 1,321,245 million a year ago. Capital expenditure was IDR 281,655 million compared to IDR 1,314,117 million a year ago. Net cash flows provided from operating activities was IDR 1,255,050 million compared to IDR 1,465,020 million a year ago. Acquisition of fixed assets was IDR 303,151 million compared to IDR 366,407 million a year ago. Acquisition of intangible assets was IDR 19,549 compared to IDR 35,132 million a year ago.

http://www.4-traders.com/PT-UNILEVER-INDONESIA-TBK-6495225/financials/

Indonesia to Surpass Germany by 2030: Report

By CNBC | CNBC

Southeast Asia's most populous nation is on track to become the world's 7th largest economy by 2030, putting it ahead of the developed nations of Germany and the U.K., a new report by McKinsey Global Institute showed Tuesday.

The report cites the country's young population, new consumer class and the rapid urbanization of cities as reasons that will elevate Indonesia's $850 billion economy up nine spots from its current place of 16th largest economy globally.

The findings do not reveal the projected rankings of other economies, and are based on a "proprietary modeling" method which McKinsey declined to elaborate on.

According to the report, Indonesia's economy will be powered by an estimated 90 million additional consumers with considerable spending power by 2030, making its "consuming class stronger than in any economy of the world apart from China and India."

Its relatively younger population will also keep the economy's productivity edge. McKinsey estimates that 70 percent of the country's population will remain of working age of between 15 and 64 in the next 18 years.

"Indonesia has a much younger, productive, and growing population. That is a different demographic outlook to the situation in many Western European economies, where the labor force will be either static or decline in size in the future," said Raoul Oberman, Chairman of McKinsey & Company, Indonesia.

The country's rapid pace of urbanization-especially in its smaller cities-as it moves up the value chain will contribute significantly to the country's growth. McKinsey estimates that 86 percent of GDP in the country will come from urban areas by 2030.

"The greater areas around Jakarta and Surabaya are the economic powerhouses of Indonesia today, but we expect strong growth in cities like Pekanbaru, Pontianak, Karawang, Makassar, and Balikpapan which are all outside of Java," Oberman said.

The report highlights the key challenges facing the economy, which involves low productivity, rising inequality and soaring consumer demand, and says the country is at a "critical juncture."

"It (Indonesia) needs to build on its recent impressive performance to boost labor productivity to 4.6 percent - that's 60 percent higher than in the past decade," said Oberman. "It also needs to tackle concerns about rising inequality and manage soaring demand from its expanding consumer class to meet the government's longer term GDP growth targets."

More From CNBC 

• Indonesian Firms Most Bullish Among Asian Corporates: Survey
• Will Indonesia Replace India in the BRICs?
• Singapore Recession Risk Looms After August Exports Shrink

http://finance.yahoo.com/news/indonesia-economy-surpass-germany-2030-093100423.html

Indonesia Q2 GDP up 6.4pc

2012/08/07

JAKARTA: Indonesia's economic growth surprisingly picked up in the second quarter of this year, fuelled by easy credit and strong domestic demand, signalling Southeast Asia remains resilient to the global slowdown.

Most economists expect the central bank to keep interest rates on hold at a record low into next year to drive growth, although some have cautioned that tighter policy might be needed beyond that to dampen domestic demand that is causing a trade deficit.

Indonesia's statistics bureau said gross domestic product growth (GDP) last quarter was 6.4 per cent from a year earlier against 6.3 per cent in the first quarter, helped by domestic consumption and investment. GDP grew by 2.8 per cent on a quarterly basis, although the figures are not seasonally adjusted.

"The strong Q2 growth provides a cushion against the risk of further growth setbacks in the rest of the year," said Aninda Mitra, an economist at ANZ Bank in Singapore.

"But we still think policymakers will need to tighten policies to ensure that the strong growth does not destabilise the external financing gap, which could be rupiah negative and ultimately not good for inflation either."

Economists had forecast that annual growth in Southeast Asia's largest economy would ease to 6.1 per cent, citing shrinking exports.

Financial markets showed little reaction to the data, which showed that buoyant domestic demand, especially in transport, hotels and government consumption, kept growth on an even keel.
Thailand and Malaysia are also expected to post a pick up in growth in the second quarter versus the first quarter, economists have said.

After China, Indonesia's growth is also the highest among the world's leading emerging economies.

As demand from China and Europe fell in recent months, Indonesia has had consecutive trade deficits between April and June, weighing on the rupiah.

A burgeoning appetite for imports, from wheat for fast food to iPads and luxury cars, in a country that mostly exports raw commodities such as coal and crude palm oil, created a US$1.3 billion trade deficit in June - a deficit economists see continuing to the end of 2012 to keep pressure on the rupiah.

Expectations for slower growth meant economists had started to call for rate cuts this year. But most now see rates on hold into 2013 as Bank Indonesia will want to support annual growth towards President Susilo Bambang Yudhoyono's target of seven per cent by 2014. Reuters

Corporate Indonesia Is Most Bullish; HK the Least

Companies in Indonesia, Southeast Asia's largest economy, are the most optimistic in Asia, with almost 9 out of 10 firms expecting their businesses to improve in the third quarter of the year, while Hong Kong, whose open economy is increasingly tied to mainland China, is the most pessimistic, according to a quarterly survey conducted by Standard Chartered.

Indonesia is less dependent on exports and more reliant on domestic demand compared to its peers elsewhere in Asia, and its middle-class, along with per-capita income, is growing, the British bank said in the survey. These themes shield the country from weakness in demand in U.S., Europe and China, Asia's biggest export markets.

"The overall (global) economy is still very much focused on defensive mode," Clive McDonnell, Head of Equity Strategy, Standard Chartered, told CNBC Asia "Squawk Box" on Wednesday. "Yes, Indonesia does export quite a bit of coal to India and China so there are nuances there. Indonesia stands out from its North Asian peers because it is domestic-demand focused."

Because of this domestic demand, about 81 percent of Indonesian companies expect new orders to rise 10 percent in the current quarter, compared to a regional average of 66 percent, according to the survey. Eight out of 10 Indonesian firms also expect margins to improve, far higher than the average of 45 percent among respondents.

Conversely speaking, because of weakness in foreign markets as well as increasing reliance on domestic buying, demand has become the biggest concern in the region. Respondents worried this indicator jumped from to 26 percent from 4 percent in the previous quarter. Concerns about input costs fell as inflation moderated in the second quarter.

The most pessimistic respondents in the region were in Hong Kong, which is the most vulnerable to a slowdown in the global economy because trade makes up 223 percent of GDP . Respondents in Hong Kong expect to invest and hire less as growth opportunities decline. While they also forecast input costs to drop and hence margins to rise, they also think that a slowdown in China's economy would offset any benefit of a margin increase.

"The drop in Hong Kong's ranking to the market with the lowest corporate sentiment reflects a confluence of negative factors including the slowdown in mainland Chinese tourist arrivals and, in turn, the absence of their spending," Standard Chartered said in the report. "It may also reflect the slowdown in China's economic growth."

Unlike in Hong Kong, the domestic consumer should be able to prop up Indonesia, for which trade accounts for only 25 percent of the economy. Vishnu Varathan, Market Economist at Mizuho Corporate Bank in Singapore, agrees that the Indonesian consumer looks resilient now, but warns that risks are building for the Indonesian economy.

"I think people are getting a little bit more cautious. Credit growth has been very strong, but I don't know how sustainable these straight-line projections of consumption are," Varathan told CNBC. "Wage growth has actually not been keeping up with inflation and GDP growth."

For the second-quarter survey, Standard Chartered interviewed about 350 'C-level' executives across all markets and industry groups in Asia ex-Japan in June.

- By CNBC's Jean Chua.

http://finance.yahoo.com/news/corporate-indonesia-most-bullish-hong-033455755.html

Indonesia’s Stock Market Value to Lure Investors, Panin Says

Indonesia’s Stock Market Value to Lure Investors, Panin Says

By Berni Moestafa and Chan Tien Hin - Sep 12, 2011 6:12 PM GMT+0800

Indonesian stocks have become more attractive to overseas investors after the world’s fourth-most populous nation overtookMalaysia as Southeast Asia’s second- largest equities market by value, PT Panin Sekuritas said.

“Foreign investments into Indonesian stocks will likely increase as portfolios are weighted in line with the size of a nation’s stock market,” Winston Sual, who helps manage $991 million at Jakarta-based Panin Sekuritas, said in a Sept. 9 interview. The firm’s $407 million Panin Dana Maksima fund has climbed 40 percent in the past year, beating 35 rival funds, according to data compiled by Bloomberg.

The value of Indonesian equities surged 17 percent to $416 billion this year to Sept. 9, surpassing Malaysia’s $407 billion to become the ninth-biggest stock market in Asia. Singapore’s stock market is the biggest in Southeast Asia at $523 billion. The Jakarta Composite index (JCI) has risen 8 percent in 2011 through last week, compared with a 3.3 percent drop in the FTSE Bursa Malaysia KLCI Index.

Foreign investors stepped up buying of Indonesian shares as China and India increased demand for coal and palm oil, benefiting companies such as PT Bumi Resources and plantation owner PT Astra Agro Lestari. Rising incomes have also spurred domestic spending, lifting consumer companies including PT Astra International, the biggest automotive retailer.

“Indonesia’s economy is the largest in Asean and it is resilient because of strong domestic consumption,” Panin’s Sual said, referring to the Association of Southeast Asian Nations.

Faster Growth

The Indonesian economy, the largest in Southeast Asia, will likely expand 6.5 percent this year, the fastest pace since the 1998 Asian financial crisis, President Susilo Bambang Yudhoyono said Aug. 16. That compares with the Malaysian central bank’s estimate for growth of as much as 6 percent.

Indonesia’s stock index dropped 2.6 percent to close at 3,896.12 in Jakarta, its biggest drop since Aug. 19. The Kuala Lumpur benchmark index slid 1.6 percent to 1,446.26, compared with a 1.9 percent fall in the MSCI Emerging Markets Index.

Bank Indonesia kept its benchmark interest rate unchanged on Sept. 8 at 6.75 percent for a seventh month to help support domestic consumption, which accounts for about 56 percent of the economy.

People Factor

Indonesia’s population of 243 million ranks behind only those of China, India and the U.S. By contrast, Malaysia has about 28 million people and Singapore 4.7 million, U.S. Census Bureau data show.

“There will be more investments going into the stock market as people are looking for a growth story,” Lye Thim Loong, who helps manage about $770 million at Libra Invest Bhd. in Kuala Lumpur, said. “We have been very actively investing in Indonesia. You have the population to sustain a domestic consumption story.”

Overseas investors bought a net $1.7 billion of Indonesian shares this year through August, according to data compiled by Bloomberg. Foreign investors sold a net 500 million ringgit ($166 million) of Malaysian stocks this year through August, according to data from the Kuala Lumpur stock exchange and Credit Suisse Group AG.

To contact the reporter on this story: Berni Moestafa in Jakarta atbmoestafa@bloomberg.net; Chan Tien Hin in Kuala Lumpur at thchan@bloomberg.net


http://www.bloomberg.com/news/2011-09-12/indonesia-s-stock-market-value-to-lure-investors-panin-says-1-.html

The Jakarta stock market closed down over 4 per cent on Monday, taking its 3-day losing streak to 8 per cent.

Indonesia: sinking in the flood

January 10, 2011 10:10 am by Josh Noble

0 0

The sounds of a bubble bursting? The Jakarta stock market closed down over 4 per cent on Monday, taking its 3-day losing streak to 8 per cent. Inflation looks to be the trigger, and the focus is now firmly on Bank Indonesia to act.
But what can Indonesia do to balance rising costs with the fears of higher capital inflows? The rupiah looks like the obvious target.
The FT’s Anthony Deutsch reports from Jakarta:

“For a long time people have been very bullish on Indonesia. There’s been a huge run up since 2009”, said Johanna Chua, managing director and chief economist for Asia pacific at Citigroup in Hong Kong. “Some people are saying Jakarta’s been over bought and I think the real trigger is inflation fears and concerns the central bank is falling behind the curve on inflation.”

Like in China and India, food inflation seems to be the big worry, especially as Indonesia is one of the biggest importers of Australian grains. As research house Gavekal points out:

With an area the size of France and Germany combined currently under water, one might think that the devastating floods wreaking havoc on Queensland would be generating a little more press than they have thus far…
The potential for a pick-up in inflation across Asia was always going to be a concern… Asian inflation is a double whammy in that a) higher input prices put pressure on margins, and b) accelerating prices force policymakers to step on the breaks and squeeze out any excess liquidity. In that regards, the potential for higher energy and food prices triggered by the Australian devastation has to be a concern for Asian equity investors.

The mantra among most emerging markets strategists – whether bullish or bearish on the equity market – seems to be that Indonesia remains a great ‘long-term structural story’. The action in the CDS market suggests that view hasn’t changed – the spread hasn’t budged from its near-record lows.
Bank Indonesia has so far appeared loath to move rates for fear of attracting more ‘hot money. Perhaps as a result, investors are also getting tetchy about rupiah-denominated assets. The rupiah has only risen 1.6 per cent in the past 12 months – less than the renminbi – and significantly less than the major rises seen in the Thai baht and the Malaysian ringgit over the same period.
With rates going up almost everywhere else in the region, Indonesia, for once, looks like the laggard.

http://blogs.ft.com/beyond-brics/2011/01/10/indonesia-sinking-in-the-flood/

Indonesian shares rise fast...

http://82.118.73.16/assets/print?aid=INJAK25793320100205

Indonesia finance minister named a managing director of the World Bank Group

Indonesia finance minister quits


JAKARTA, May 5 — Indonesian Finance Minister Sri Mulyani Indrawati, a key reformer in Southeast Asia’s biggest economy, is leaving office in what could be a major blow to a crackdown on graft and tax evasion.

Indrawati, 47, was named a managing director of the World Bank Group, a sign of the growing clout of emerging economies. But the move also reflects increasing pressure on her at home from politicians opposed to her clean-up campaign.

“It’s a good move for her, but not good for Indonesia,” said Nick Cashmore, head of CLSA in Indonesia.

“She’s leaving earlier than expected, not doing the full five years. It shows that all these undercurrents are gathering pace.”

President Susilo Bambang Yudhoyono has congratulated Indrawati on the move, indicating he is willing to let her go, but investors will be watching who he appoints as her replacement for a signal on where the reform programme is headed.

Chief Economic Minister Hatta Rajasa will temporarily take charge of the finance portfolio until Indrawati’s replacement is appointed, presidential spokesman Julian Pasha told Reuters on Wednesday. Indrawati is to take up the World Bank post on June 1.

Rajasa is better known for his political skills, unlike Indrawati, who has a doctorate in economics and was an executive director at the International Monetary Fund before joining government.

Investors have been big buyers of Indonesian assets in the past 18 months, largely attracted by its pace of reform and liberalisation and the prospect of a surge in demand for its vast natural resources as the global economy recovers.

Local financial markets fell after the announcement of Indrawati’s move, but analysts said the weakening in the rupiah to 9,090 per dollar from 9,030 and a 3 percent drop in the stock market reflected broader investor concerns about emerging markets and risk related to the euro zone.

“The market will definitely react negatively to her departure,” said Destry Damayanti, an economist at Mandiri Sekuritas in Jakarta.

“Hopefully it is a short-lived one, but it all depends on who replaces her. That is the main concern for now, her replacement. What is needed is someone who is a professional, someone who is not politically biased.”

NO CENTRAL BANK GOVERNOR

Likely candidates include: Anggito Abimanyu, the head of the ministry’s Fiscal Policy Agency; Chatib Basri, an academic and special adviser to the finance minister; Raden Pardede, an economist and former head of the state asset management company; and Agus Martowardojo, president director of Indonesia’s largest lendor Bank Mandiri.

The change at the finance ministry comes at a time when the country is still without a governor for Bank Indonesia, the central bank. Darmin Nasution, the senior deputy governor, has been acting governor since mid-2009.

“With Sri Mulyani’s strong and credible reform credentials, her departure is likely to be seen negatively by the market, not to mention that Indonesia has not had a BI Governor in almost a year,” Citibank economist Johanna Chua said in a research note.

“Thus, vacancies in two of the most important economic posts will raise some concerns about the credibility of macro policies and the pace of reforms. Nonetheless, we think despite her departure, Indonesia’s track record of prudent fiscal policies will likely remain intact.”

Indrawati and Vice President Boediono, who was earlier the central bank governor, were regarded as Yudhoyono’s top reformers, taking a tough public stance against corrupt politicians, officials and businessmen in a country that ranks among the most corrupt in the world.

Their reforms, for example in the tax and customs offices, led to improvements in revenue collection but much more remains to be done to clean up the civil service, including the police and judiciary.

Indrawati raised salaries at revenue departments, fired corrupt officials, and introduced more transparent work practices including open plan offices and computerised records.

She has sent sent investigators from the anti-corruption commission on surprise raids, including to the customs department, to check whether officials had cash stashed away.

However, tax evasion remains a serious problem. In a country with a population of about 240 million, there are only 16 million registered tax payers.

Indonesia: 2010 market outlook: Who will pull the trigger first?

Friday, February 5, 2010 9:32 PM


2010 market outlook: Who will pull the trigger first?

Harry Su , Senior Vice President, Head of Research | Thu, 02/04/2010 12:06 PM | Business

During our recent Indonesia strategy marketing trip we spent two full days in Singapore and another two full days in Hong Kong, meeting with various fund managers. We found that all of those in Singapore were still very much bullish on Indonesia, agreeing with us that the Indonesian market performance would be better in the first half of 2010 than in the second, because the risk of rising inflation and interest rates was expected to be higher in the second half of 2010.

Virtually everyone was overweight in cyclicals, with coal clearly the single-most preferred space. Some fund managers disagreed with us on banks, because of the contagion effect from regional de-rating, expensive valuations and concerns over loan growth — particularly given the reduced in spending on infrastructure in 2010. It is worth noting here that the Public Works Ministry will be spending only Rp 34 trillion in 2010, down 18 percent year on year.

In Hong Kong, fund managers had mixed views on Indonesia. Some were overweight on energy, again as the preferred area of exposure. We found this group of Hong Kong fund managers was in agreement with us to underweight the consumer sector because of rising raw materials prices, particularly sugar (up 123 percent year on year).

Some were neutral, adopting a trading stance because they believed easy money had been made and that markets (i.e. not just those in Indonesia) would be choppy this year because of the current global
market volatility.

Others were underweight or had no exposure in Indonesia. This set of fund managers believed Indonesia would not outperform its strong performance last year. With China tightening and the US dollar gaining strength, prices of commodities would disappoint, which is a negative for Indonesia because one-third of the Jakarta Composite Index (JCI) market capitalization is in commodity-related counters.

Many fund managers told us that regional strategists were all advising that markets around the region would perform better in the first half of 2010 than in the second. When we began our roadshow in Singapore, Bahana was also in this camp, believing that the first half would be a more benign period given that inflation and interest rates were set to remain low during this period.

However, with Singapore fund managers all planning to get out of the Indonesian markets by April-June, the first half of 2010 could turn out to be weaker than the second.

It is worth highlighting that in all meetings we faced more questions about Indonesia’s deteriorating political landscape than we have ever faced before — which is not surprising given the de-rating of the Thai market as a result of the political situation there. It is also worth highlighting that the House of Representatives inquiry committee for Bank Century is expected to provide its preliminary findings on Feb. 4 — but won’t present its final recommendations until March 4.

Theoretically speaking, if the Bank Century case is pursued, Indonesia’s political environment could remain tense until August, when the Constitutional Court is due to hand over the case to the People’s Consultative Assembly (MPR).

Coupled with concerns over China and the US markets, it is possible in our view that profit taking could occur sooner rather than later. In fact, 2010 is shaping up to be a year when big funds will pull the trigger first and exit the market.

The key to the success of stock market portfolios will lie in the timing of exit strategies. On the flip side, once the selling pressure subsides and valuations fall to more reasonable levels, the second half of 2010 could provide more lucrative entry levels for investors.

Happy trading!

http://www.thejakartapost.com/news/2010/02/04/2010-market-outlook-who-will-pull-trigger-first.html

Fitch upgrades Indonesia

Fitch upgrades Indonesia
Published: 2010/01/26


HONG KONG: Fitch Ratings upgraded Indonesia's sovereign rating yesterday to one notch below investment grade, giving a vote of confidence that is likely to spur further investments in Southeast Asia's biggest economy.

Indonesia's rating was raised to BB plus, with Fitch citing rising foreign exchange reserves, improving public finances and strong growth prospects as key factors behind the move. The outlook on the rating is stable.

The rupiah currency snapped back from early lows and spreads on Indonesian credit default swaps tightened after the upgrade of its long-term foreign and local currency ratings, and analysts said an investment grade rating was likely in the next few years.

"This (upgrade) reiterates what markets have been saying for a long time now, that Indonesia is a great credit story but it has some more work to do before getting that investment grade rating," said Kenneth Akintewe, a fund manager at Aberdeen Asset Management in Singapore who manages US$500 million (US$1 = RM 3.41) in assets.

Though foreign investors have been snapping up its bonds and stocks on its strong economic outlook as well as its high yield, analysts said high and volatile bouts of inflation and weak infrastructure meant its debt yields were close to those of Argentina - which has billions of US dollars in unsettled debt.

The stock market jumped over 80 per cent and bonds posted equity-like returns last year as investors have been attracted by the tantalising prospect that relatively stable politics and healthy economic growth could catapult the country to investment-grade status in a few years to stand alongside BRIC nations Brazil, Russia, India and China.

A US$2 billion Indonesian government bond sale earlier this month attracted US$4.5 billion in orders, bankers said.

Pimco, the world's biggest bond fund manager, recently said that it expects the economy to get an investment grade rating in the next three to five years.

The rupiah was the best performing Asian currency last year, gaining 17 per cent, and analysts are bullish about its prospects this year, too.

"I see capital gains for holding Indonesia's bonds with maturity above 10 years for long-term investors and the rupiah should also get a boost," Gunawan said.

Fitch now has the highest rating for Indonesia among the three major rating agencies, though it remains below its investment grade rating prior to the 1997 Asian financial crisis.

Standard & Poor's rates Indonesia's unsecured foreign currency debt at BB minus, while Moody's Investors Service has its sovereign foreign currency rating at Ba2, two notches below investment grade.

The upgrade means it is the highest ranking non-investment grade country in Asia ahead of the Philippines and Vietnam.

Fitch noted, however, that the country's relatively shallow capital markets remained vulnerable to risks surrounding a reversal of carry trades or sudden emerging-market risk aversion. It also said more reforms in its financial sector were needed.

"The concerns on the ground are the success of the reforms. To get investment grade, the reforms would have to play out," said Wellian Wiranto, Asian economist at HSBC in Singapore. - Reuters

Is Indonesia the country in the best shape in 2009?

Is Indonesia the country in the best shape in 2009?
Indonesia's friendly response to the visit by US Secretary of State Hillary Clinton is the country's latest piece of good news.

By Martin Hutchinson, breakingviews.com
Last Updated: 11:02AM GMT 20 Feb 2009

With GDP growth expected to be 3.5pc in 2009, Indonesia is also suffering only mildly from the downturn.

Elections this year seem likely to result in the continuation of current policies. Islamic, impoverished and with 238m people, Indonesia is surprisingly stable and successful: as its foreign minister said, a "good partner" for the US in the Muslim world.

Indonesia is close to self-sufficiency in oil, but no longer exports it, so it has escaped most of the buffeting from the rise and collapse in petroleum prices. Since its 1998 crisis, it has depended little on foreign direct investment, which peaked at only 2pc of GDP in 2007.

Hence the collapse of global investment flows has also affected it little.

Nevertheless as Indonesia has a GDP per capita of only $3,900, there's a lot that could go wrong. The fact that it hasn't, and that Indonesia seems poised to follow five years of roughly 6pc growth with another year of 3.5pc growth in the worst global recession since the 1930s is a tribute to the political and economic management of President Susilo Bambang Yudhoyono and his long-serving finance minister, Sri Mulyani Indrawati.

Sri Mulyani has proposed a stimulus package, in line with the popular global trend, but of only 1.4pc of GDP, which should not significantly upset Indonesia's budget balance. Legislative and presidential elections this year offer Indonesians the chance to reward the government's competence and polls suggest they are likely to do so.

As its foreign minister, Hassan Wirajuda, told Clinton, Indonesia, as a huge moderate Muslim country, can help the US greatly in reaching out to the Islamic world. It is a large, moderately capitalist country. And it has done well without enormous help from foreign investment, outside policy advice or raw material exports. Indonesia is also a fine economic example to its Islamic neighbours and others.

"Happy is the country that has no history," said Montesquieu. Happier still is the country that has no world-shaking news, other than Clinton's visit.

For more agenda-setting financial insight, visit www.breakingviews.com

http://www.telegraph.co.uk/finance/breakingviewscom/4732842/Is-Indonesia-the-country-in-the-best-shape-in-2009.html