Polls reassure market<\/p>\n
The financial market performed last week in very much the same
\nway as it did following the April 5 legislative election.<\/p>\n
The Jakarta Stock Exchange (JSX) composite price index gained
\nmore than 2.7 percent on April 6 and the rupiah strengthened
\nbetween the Rp 8,200 and Rp 8,700 band, which the central bank
\nthen considered its comfort zone<\/p>\n
Likewise, the JSX index jumped 3.1 percent to 768.25 the day
\nafter what the public saw as a peaceful and fairly clean
\npresidential election. Similarly, the rupiah exchange rate firmed
\nup to Rp 9,000 from Rp 9,135 against the dollar.<\/p>\n
If we can learn lessons from our immediate past, it is
\nimportant to note that on April 12 the JSX lost 1.5 percent on
\nnegative sentiment. This was triggered by a joint political
\nstatement from 19 political parties, which rejected the results
\nof the legislative election and demanded a repeat poll.<\/p>\n
Upbeat sentiment returned to the market only after the protest
\nturned out to be a bluff, driven by politicians disillusioned
\nwith the poor showings of their parties in the election. Many of
\nthe parties later watered down their stance, especially after
\npublic opinion turned against them and they were seen as bad
\nlosers.<\/p>\n
Whether a similar protest will emerge this time around will
\ndepend on how the final process of vote counting proceeds during
\nthe next two weeks.<\/p>\n
As the experiences from the legislative election show, a
\ncredible election process will promote confidence in the economy,
\nas reflected in the steep rise in the JSX index to 810.85 on
\nApril 20, the highest level ever reached by the JSX since its
\nrevamp in August, 1977.<\/p>\n
The high probability incumbent President Megawati
\nSoekarnoputri will contest the election runoff on Sept. 20 is
\nlikely to help assure the market that the machinery of government
\ncan continue to run smoothly during this transition period.<\/p>\n
However, this is not enough. The Sept. 20 runoff must also be
\nseen to be peaceful, clean and credible, otherwise whatever gains
\nthe financial market has made thus far in recouping investor
\nconfidence will disappear.<\/p>\n
Restoring confidence is crucial to fostering economic
\nstability that can weather the heightened political emotions
\nlikely to arise in the final stage of the presidential election.<\/p>\n
While macroeconomic stability has been strengthening since
\nlate 2001, the economy is still highly vulnerable to domestic and
\nexternal shocks. The rupiah exchange rate has lost almost 8
\npercent and Bank Indonesia's foreign reserves have decreased by
\nmore than US$2.5 billion in just one month, between mid-May and
\nmid-June, due to uncertainty then about an imminent rise in the
\nbenchmark U.S. Federal Reserve lending rate and the steep rise in
\ninternational oil prices to an excess of $40 per barrel.<\/p>\n
The rupiah and stock prices did recover last month after the
\nFed decided to increase its rate by only 0.25 of a percentage
\npoint, lower than the market expected. However, the damage had
\nbeen done and the significant progress made earlier was lost. The
\nrupiah is now hovering between Rp 8,900 and Rp 9,100, as against
\nRp 8,200 and Rp 8,700 before mid-May, with the JSX now at much
\nlower than the 810 points it reached in April.<\/p>\n
We are therefore most encouraged by the central bank's
\nannouncement last week that it will continue to focus on
\ncontrolling inflation. This commitment was made more credible
\nafter Bank Indonesia and the government agreed earlier this month
\nto set up a team to implement a comprehensive inflation targeting
\nframework that would provide a better anchor for the public's
\ninflation expectations.<\/p>\n
A better coordination of monetary and fiscal policies, as
\nreflected in the steady easing of the credit crunch and the
\ncontinued fiscal consolidation, is vital to maintain stability
\nand smoothen the transition period until the new government
\nelected in September begins work.<\/p>\n
In this context, it is most important the House of
\nRepresentatives and the government accelerate the preparations
\nfor the draft 2005 state budget because the new government would
\nhave little time to prepare the budget from scratch.<\/p>\n
Although the budget will still have to be approved by the new
\nHouse to be inaugurated in October, a detailed spending plan
\nwould at least give the market an idea of the likely fiscal
\ndirection next year, decreasing the uncertainty factor.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/polls-reassure-market-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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