Business sentiment strengthens but legal uncertainties remain
Fitri Wulandari, The Jakarta Post, Jakarta
The country's Business Sentiment Index (BSI) rose for the second consecutive period, as more business leaders expressed confidence about their current performance and their business outlook for the next six months, a survey said.
According to the Danareksa Research Institute survey of top executives at leading companies for the April-May period, the BSI climbed to 111.3 from 110.2.
"The higher investor sentiment stressed greater confidence in the vigor of the economic recovery, which signifies a prelude to stronger growth ahead for both the nation's economy and companies' financial conditions," the survey said.
According to the survey, the Present Situation Index (PSI) climbed to 100.9 from 100.3, and the Expectations Index (EI) rose from 120.2 to 121.6, which contributed to the rising BSI.
The Danareksa survey covered 700 chief executives or directors from a wide variety of leading companies in various sectors, ranging from construction, agriculture and mining, to hotels and restaurants.
The survey was designed to measure CEOs' assessments of current economic and business conditions, as well as their expectations for the next six months.
While the BSI rose, the Business Confidence in the Government Index (BCGI) plunged for the fourth straight time to 104.6 from 106.1. The BCGI's decline was due to a plunge in sentiment about law enforcement, which hit a fresh low of 78.7.
"The index reflects doubt about committing fresh funds to expand capacity," Danareksa remarked.
This doubt, Danareksa said, has emerged amid expected improvements in corporate profitability and liquidity over the next six months, brought about by an anticipated slide in the benchmark interest rate on Bank Indonesia's SBI promissory notes and the appreciation of the rupiah against the US dollar.
With stocks of finished goods almost exhausted, more CEOs believe existing capacity needs to be expanded to sustain profit growth, as the increasing use of production capacity approaches its limits.
"CEOs, however, have to think about the safety of committing large sums of money in advance of financial returns against any risks to the future life of their business operations," Danareksa pointed out.
Business leaders are waiting for signs that the government is committed to protecting entrepreneurs.
"The most prominent threat is the uncertainty of whether the state can enforce a valid contract if any party to the contract reneges unfairly," it added.
Without legal assurance, the translation of sanguine sentiment into stronger fundamentals remains at best a fashionable topic for talk shows, Danareksa stressed.