The week in review: Geared up for more shocks
The Jakarta Post | Editorial | Sun, December 01 2013, 11:15 AM
President Susilo Bambang Yudhoyono strengthened the message of caution conveyed last week by Bank Indonesia’s (BI) Governor Agus Martowardojo that Indonesia should brace for possible shocks in the financial market, as the US Federal Reserve could start tapering its stimulus early next year.
This will mean that the supply of cheap dollar-based loans could dry out soon, pushing up lending rates. The Fed’s US$85 billion bond buying per month, or quantitative easing, has made dollar-based loans so cheap that many companies in Asia, including Indonesia, have been ramping up their borrowing in dollars.
The President’s warning at the conference of business leaders here on Wednesday that the government should prepare a contingency plan was not exaggerated.
Just look at the great shocks on the financial and equity markets in Indonesia and other emerging markets between July and September after the Fed merely hinted in May that tapering was forthcoming.
Tens of billions of dollars in portfolio investment flew out of Indonesia, pushing down sharply the rupiah exchange rate and share prices on the back of expectations that the tapering policy would make dollar interest rates rise significantly.
It is difficult to imagine the magnitude of the shock on the Indonesian financial market when the fiscal stimulus ended sometime in the first half of the year, but the rupiah could be in for another great shock.
The Jakarta Composite Index (JCI) dropped almost 6 percent this month and the rupiah hit another low in four years, depreciating further to around Rp 11,815 per US dollar.
According to the Jakarta Interbank Spot Dollar Rate (JISDOR), the rupiah has so far depreciated by 18 percent year-to-date and is now among Asia’s worst-performing currencies.
Finance Minister Chatib Basri stated he had already prepared several policy measures to stabilize the economy and reduce the current account deficit, which he estimated to reach $31-$32 billion throughout this year, higher compared to the $21.5 billion in 2012.
The measures include increases in import tax on consumer and luxury goods, combined by a fiscal incentives package for companies that do not repatriate their earnings overseas and for firms that don’t lay off their workers.
Agus said the central bank was now intensifying a campaign to bring home overseas funds to boost dollar liquidity onshore, so that the rupiah could be cushioned better against external shocks. BI also again raised its benchmark interest rate to 7.5 percent two weeks ago.
The news from global trade negotiations within the General Council of the World Trade Organization (WTO) in Geneva is not good either, as negotiators from 159 member countries failed early this week to clinch global free trade deals for approval by the WTO’s 9th ministerial meeting in Bali early next week.
Achieving a deal in Bali is seen as a final effort to revive a broader 12-year effort to ease global trade rules. The mini-deal discussed in Geneva had been intended, in part, to reduce delays and inefficiencies at national borders.
Making it easier to move goods across borders could boost the global economy by nearly $1 trillion a year and support 21 million jobs, according to a report co-written by Jeffrey Schott, a senior fellow in international trade at the Peterson Institute for International Economics.
Some developing countries are demanding economic and technical assistance before they sign on. India is holding up a deal by insisting on protections for its farmers.
Negotiations toward a broader global trade deal began in Qatar in 2001 but the agonizing pace of talks has frustrated negotiators.
Success in the Bali meeting has been expected to return confidence to members in the multilateral trading system in general amid proliferation of regional and plurilateral trade accords, and in the negotiating function of the WTO in particular. But the expected deals on three packages — trade facilitation, agriculture and least developed countries — seemed more elusive.
The divergence in the proposal in agriculture issues would serve as a solid foundation for progress in the talks on trade facilitation, which deals with simplified custom procedures, another hot topic of debate among developed and developing nations, Trade Ministry director general for international trade cooperation Iman Pambagyo said.
This is like a mutual hostage relationship between the G33 proposal and the trade facilitation draft deal. The progress in one area will generate a snowball effect in another area, he added.
The move by thousands of doctors across the country to stage a nationwide protest on Wednesday to show solidarity with three doctors — Dewa Ayu Sasiary Prawani, Hendry Simanjuntak and Hendy Siagian — who were put behind bars as a result of a Supreme Court ruling, raised more criticism than sympathy.
The three were deemed responsible for the death of Julia Fransiska Makatey in 2010 due to a heart embolism during a caesarean section at Kandou Hospital in Manado.
Many blasted the doctors for violating their code of ethics as the strike and protests left many hospital patients without proper medical attention. A patient in South Sulawesi even claimed to have suffered a miscarriage without any medical assistance.
This will mean that the supply of cheap dollar-based loans could dry out soon, pushing up lending rates. The Fed’s US$85 billion bond buying per month, or quantitative easing, has made dollar-based loans so cheap that many companies in Asia, including Indonesia, have been ramping up their borrowing in dollars.
The President’s warning at the conference of business leaders here on Wednesday that the government should prepare a contingency plan was not exaggerated.
Just look at the great shocks on the financial and equity markets in Indonesia and other emerging markets between July and September after the Fed merely hinted in May that tapering was forthcoming.
Tens of billions of dollars in portfolio investment flew out of Indonesia, pushing down sharply the rupiah exchange rate and share prices on the back of expectations that the tapering policy would make dollar interest rates rise significantly.
It is difficult to imagine the magnitude of the shock on the Indonesian financial market when the fiscal stimulus ended sometime in the first half of the year, but the rupiah could be in for another great shock.
The Jakarta Composite Index (JCI) dropped almost 6 percent this month and the rupiah hit another low in four years, depreciating further to around Rp 11,815 per US dollar.
According to the Jakarta Interbank Spot Dollar Rate (JISDOR), the rupiah has so far depreciated by 18 percent year-to-date and is now among Asia’s worst-performing currencies.
Finance Minister Chatib Basri stated he had already prepared several policy measures to stabilize the economy and reduce the current account deficit, which he estimated to reach $31-$32 billion throughout this year, higher compared to the $21.5 billion in 2012.
The measures include increases in import tax on consumer and luxury goods, combined by a fiscal incentives package for companies that do not repatriate their earnings overseas and for firms that don’t lay off their workers.
Agus said the central bank was now intensifying a campaign to bring home overseas funds to boost dollar liquidity onshore, so that the rupiah could be cushioned better against external shocks. BI also again raised its benchmark interest rate to 7.5 percent two weeks ago.
The news from global trade negotiations within the General Council of the World Trade Organization (WTO) in Geneva is not good either, as negotiators from 159 member countries failed early this week to clinch global free trade deals for approval by the WTO’s 9th ministerial meeting in Bali early next week.
Achieving a deal in Bali is seen as a final effort to revive a broader 12-year effort to ease global trade rules. The mini-deal discussed in Geneva had been intended, in part, to reduce delays and inefficiencies at national borders.
Making it easier to move goods across borders could boost the global economy by nearly $1 trillion a year and support 21 million jobs, according to a report co-written by Jeffrey Schott, a senior fellow in international trade at the Peterson Institute for International Economics.
Some developing countries are demanding economic and technical assistance before they sign on. India is holding up a deal by insisting on protections for its farmers.
Negotiations toward a broader global trade deal began in Qatar in 2001 but the agonizing pace of talks has frustrated negotiators.
Success in the Bali meeting has been expected to return confidence to members in the multilateral trading system in general amid proliferation of regional and plurilateral trade accords, and in the negotiating function of the WTO in particular. But the expected deals on three packages — trade facilitation, agriculture and least developed countries — seemed more elusive.
The divergence in the proposal in agriculture issues would serve as a solid foundation for progress in the talks on trade facilitation, which deals with simplified custom procedures, another hot topic of debate among developed and developing nations, Trade Ministry director general for international trade cooperation Iman Pambagyo said.
This is like a mutual hostage relationship between the G33 proposal and the trade facilitation draft deal. The progress in one area will generate a snowball effect in another area, he added.
The move by thousands of doctors across the country to stage a nationwide protest on Wednesday to show solidarity with three doctors — Dewa Ayu Sasiary Prawani, Hendry Simanjuntak and Hendy Siagian — who were put behind bars as a result of a Supreme Court ruling, raised more criticism than sympathy.
The three were deemed responsible for the death of Julia Fransiska Makatey in 2010 due to a heart embolism during a caesarean section at Kandou Hospital in Manado.
Many blasted the doctors for violating their code of ethics as the strike and protests left many hospital patients without proper medical attention. A patient in South Sulawesi even claimed to have suffered a miscarriage without any medical assistance.
