Business confidence continues to worsen: Survey
JAKARTA (JP): Business confidence again fell in the April-May period due to domestic political uncertainty, according to a survey conducted by the Danareksa Research Institute.
Danareksa said in a report released on Monday that the business sentiment index fell to 110.1 from 113.8 on losses in both the present situation index and the expectations index.
The agency said the drop in the two indexes was due to the "sharp erosion of investor confidence in the government".
The survey involved some 700 CEOs and directors of companies from various sectors.
The current domestic leadership crisis and economic woes have created jitters among businesspeople. The People's Consultative Assembly, the country's top legislative body, is planning to hold a special session on Aug. 1 that could lead to the impeachment of the embattled President Abdurrahman Wahid.
According to the survey, sentiment about the current economic condition fell 8.24 percent in view of the deteriorating business environment on the back of growing political tensions.
The index that measures business conditions declined by 3 percent, as businesspeople felt the brunt of the economic and political instability, with all key economic variables straying farther from their business assumptions, the agency said.
As such, the businesspeople expected prices and interest rates to go further north and the exchange rate and the composite price index to go further south, broadly dampening corporate prospects, the agency said.
According to the survey, the confidence of businesspeople in their own companies slipped slightly to 148.8 from 149.9 on the back of across-the-board declines in the sentiment on capital spending, sales, profit, liquidity and the use of production capacity and labor.
The agency said the increasingly grim economic outlook pulled sentiment down by 7 percent to 72.7 from 78.1, as the short-term effects of the current political turmoil could be hugely destabilizing in fragile political situations.
The sentiment on the business outlook also weakened 4.3 percent in the face of a crumbling rupiah and rising interest rates that have pushed up the cost of debt servicing, the agency said.
"With a bleak picture of the economy, confidence in the corporate outlook also lowered to 153.9 from 156.2, as business executives are wary of companies' growth prospects," the agency said.
The agency said the prospects for an imminent recovery for both the economy and companies looked slim, with the rupiah more likely to weaken than strengthen.
Businesspeople will take a bigger hit from all angles given the rising spiral of inflation-depreciation that would be further ignited by likely rises in SBI (Bank Indonesia promissory notes) rates, fuel and electricity prices, the agency said.
"They are squeezed between lower sales revenues and higher costs, with profits on the wane," the agency said, adding that it was too risky to proceed with any business plans, even if the unpredictable risks could be reliably hedged, with the risk premium difficult to assess in advance.
Accordingly, there will only be a sparse appetite for new business deals, since a decrease in labor hiring and capital spending over the next six months, coupled with higher jobless rates, appear on the cards, the agency concluded. (03)