Delay in polls could prompt capital flight

Fitri Wulandari, The Jakarta Post, Jakarta

A delay in the planned general election this year would create serious damage to the country's economy as investor confidence would tumble due to the uncertainty, an investment expert warned.

Antonio Yongnata, vice president at Citigroup Asset Management, said such a delay could prompt capital flight and put pressure on the stock market as well as the country's currency.

"Uncertainty would bubble up because investors do not expect a (delay) ...," he said at a discussion on the economy on Wednesday.

"Capital flight would occur if the general election does not go (as scheduled). The short-term impact could be great," he added.

The country is preparing for its first-ever, direct general elections. Some 147 million voters will vote for legislators and independent representatives on April 5. The voters will elect the president on July 5, with the possibility of a second-round election in September if no candidate wins a majority in the first round.

Concern has been rising over possible electoral delays in several parts of the country due to logistical problems.

The government has prepared a regulation in lieu of law which will allow the General Elections Commissions to delay polling in areas with problems in the distribution of election materials.

Antonio said that disruption in the election process would push the stock market index down by between 30 points to 40 points because investors expected the polls to run smoothly.

Market sentiment has been weak for the past couple of weeks amid uncertainty over whether the polls will be on schedule next Monday.

Anton said the local currency was expected to weaken to Rp 8,600 to Rp 8,700 against the U.S. dollar if the election delay materialized.

However, if the elections run well, Anton said, investment was expected to increase next year and would help accelerate the country's economic growth.

Elsewhere, Antonio said that investment in the country was expected to grow by 2.5 percent to 3 percent this year on stronger fiscal conditions as the government's external debt level declined.

According to Citigroup, the external debt-to-GDP ratio for this year would be 55.5 percent, down from 63.1 percent in 2003.

"Investors would see that the risk of investing in Indonesia is being reduced," Antonio said.

But he urged the government to push ahead with the current economic reform drive in a bid to further improve investor confidence in the economy.

Citigroup manages around Rp 2.2 trillion-worth of investments in Indonesia, of which 88 percent is invested in fixed income, 10 percent the money market and 2 percent equity.