Thu, 10 Mar 2005

Business sentiment low in December-January period

The Jakarta Post, Jakarta

Even before it was announced, the government's intention to raise domestic fuel prices caused a decline in business sentiment, as gauged by the Business Sentiment Index (BSI), in the December- January period, according to a survey.

Exacerbated by concerns over the fallout of the Dec. 26 tsunami disaster, during that period, the BSI slipped slightly by 0.2 percent to 115.7 points, just off its 50-month high of 115.9 during the previous two-month period, Danareksa Research Institute (DRI) reported.

"The slide in the BSI reflects the uncertainty surrounding the government's imminent decision to hike fuel prices, and was magnified by the apprehension of businesspeople over the fallout of the tragedy in Aceh," it said.

The government eventually increased the fuel prices, on March 1, by an average of 29 percent as a way of reducing the costly fuel subsidy, discouraging the smuggling of subsidized fuel and promoting more efficient fuel usage.

However, DRI viewed the move as a dilemma for producers, as the fuel price hikes would eventually erode the buying power of consumers and also push up their production costs.

It leaves companies with two choices, either raise the prices of their products -- with the risk of losing some customers -- or keep the prices unchanged with the risk of margin erosion.

"The ramifications of the government's subsidy cut threatens to squeeze profit margins," it added.

In the survey, the respondents, covering more than 700 chief executives or directors representing a wide variety of leading companies in various sectors -- construction, agriculture, finance, transportation & communication, manufacturing, hotel & restaurant services and others (mining) -- answered a total of 12 questions.

The lowest response was "0", and that is when all respondents were pessimistic on all questions, while the maximum was "200" -- that is when all respondents give optimistic responses on all questions with "100" being the middle value.