Another setback in local capital market history<\/p>\n
Hendarsyah Tarmizi, The Jakarta Post, Jakarta<\/p>\n
This year shows another setback in the financial market, with
\nshare prices and rupiah suffering another downfall amid fears
\nover the worsening of the country's economic performance.<\/p>\n
The Jakarta Composite Index (JCI), the main price barometer at
\nthe Jakarta Stock Exchange, closed at 377.96 on Wednesday (Dec.
\n26), or eight percent lower from the 410.20 at the same time last
\nyear.<\/p>\n
The drop in the index reflects the general mood of the traders
\nalthough some companies performed well during the year.<\/p>\n
Capital market analysts described this year's equity trading
\nas another setback in the capital market.<\/p>\n
At the beginning of the year most analysts estimated there
\nwould be a rebound in the market, given the healthy signs of
\neconomic recovery at the time.<\/p>\n
However, all the positive scenarios drawn by the capital
\nmarket pundits went wrong as the growing conflicts between the
\npolitical leaders had, instead, killed the economic recovery
\nprocess.<\/p>\n
The same thing happened to the rupiah, which had also been
\nhurt by the standoff between former president Abdurrahman Wahid
\nand his political opponents. The rivalry among the political
\nleaders damaged all the signs of the economic recovery recorded
\nat the end of 2000. This could be clearly seen from the
\nfluctuation of the share price and the rupiah rate against the
\nU.S. dollar during the year.<\/p>\n
The fixed income-based mutual funds might come as the capital
\nmarket winner of this year. These types of funds booked a net
\ngain of an average of 15 percent as of Dec. 7, while other
\ninvestment alternatives were subdued. Bank Negara Indonesia's
\nU.S. dollar-based Phinisi mutual fund, for example, booked a net
\ngain of 110 percent.<\/p>\n
The mutual funds, which are based on equity trading, and the
\ncombination of equity and fixed income instruments, followed the
\ngeneral trend in the capital market. They also suffered a
\ndecline.<\/p>\n
The change in the country's leadership to Megawati
\nSoekarnoputri in July had, in fact, brought a new hope in the
\nfinancial market.<\/p>\n
Investors, who seemed to have been fed up with the prolonged
\npolitical conflicts, started to return to the capital market
\nafter there was a firm indication that Megawati would be elected
\nto replace Gus Dur.<\/p>\n
The change in the market sentiment before the appointment of
\nMegawati incited a buying spree, pushing up the share price index
\nto above the 450 level, the highest level recorded during the
\nyear.<\/p>\n
The rupiah also bounced back against the American greenback as
\nmarket players felt more confidence that the change in the
\ncountry's leadership would be able to help lift the nation out of
\nits worst ever economic crisis.<\/p>\n
As a result, the rupiah rose to Rp 8,500 against the U.S.
\ndollar in early August, hitting its highest level since early
\n2000.<\/p>\n
However, the bullish sentiment did not last long. Only a month
\nafter the appointment of the new president, both share prices and
\nthe rupiah started to subside after the market players began to
\nrealize that the country's economy remained at mess.<\/p>\n
From the market performance, it is clearly indicated that the
\nshortlived euphoria in the share and rupiah trading was a result
\nof technical (sentiment) factors rather than due to the
\nimprovement of economic fundamentals, which instead of improving
\ngot worst due to the political certainty.<\/p>\n
Gus Dur's weak government and his inconsistency had been
\nblamed as the main factor which caused the instability in the
\ncapital and money market. No wonder, that its removal was greeted
\nby the market players with a buying spree. Unfortunately, the new
\nPresident failed to benefit from the good momentum to maintain
\nthe market confidence.<\/p>\n
The government's slow response to cope with the economic woes
\nand inconsistency in the economic policy such as in the
\nprivatization program continue to put the economic fundamentals
\nunder distress.<\/p>\n
The slowdown in the global economy, which deteriorated
\nfollowing the terrorist attacks against the United States in
\nSeptember, has put the domestic economy in an even worse state.<\/p>\n
The country's exports, which are expected to become the prime
\nmover of the economy, started to lose steam. According to the
\nCentral Bureau of Statistics (BUS), exports plunged to its lowest
\nmonthly level, to US$4.32 billion, in September from August due
\nto the economic slowdown in key exports markets.<\/p>\n
The year-on-year inflation rate in September rose to above 12
\npercent, far higher than the government's annual target. The high
\ninflation rate clearly indicated why the central bank failed to
\nlower the interest rate of its short-term promissory notes
\n(SBIs).<\/p>\n
The interest rate of SBIs, the central bank's main instrument
\nto reduce the money in circulation, stayed high at 17 percent at
\nthe end of the year as compared to 12 percent at the beginning of
\nthe year.<\/p>\n
The high SBI rates did not only bring an extra burden for the
\ngovernment to pay the interest of the trillions of rupiah bonds
\nissued to recapitalize the country's banks, but it also impeded
\nthe process of revitalizing business activities.<\/p>\n
Banks, which are expected to play a role as the engine of the
\neconomy more effectively, could not bring much help with such
\nconditions.<\/p>\n
Worse still, as the interest rates of savings and time
\ndeposits are much lower than the SBI rates, many banks are
\nreluctant to channel their funds as loans. They prefer to place
\nthem in the risk-free SBIs.<\/p>\n
Some banks could not even solve their own financial problem.<\/p>\n
These unfavorable fundamental factors could not, of course, be
\nchanged over night. But signs of seriousness from the government
\nare certainly needed, at least to keep investors in the market.<\/p>\n
The country's fundamental factors have not changed much since
\nthe economic crisis hit the country in late 1997. All seem to
\nlook bleak, but it does not mean that the equity market, rupiah
\nor the mutual fund have lost their future.<\/p>\n
In this kind of market climate, investors don't need to wait
\nfor the sharp increase in the economic growth, or for the drastic
\ndrop in inflation rate to pour their money into the capital
\nmarket.<\/p>\n
What they need is a sign of hope, and a good promise that
\nthings will be better. But for sure, they will lose all their
\ntrust if we fail to keep the promise, and to transform the hope
\ninto reality.<\/p>",
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