Fresh loan commitment will not boost trade in local stocks
JAKARTA (JP): Trading activities on the local stock market are expected to remain flat this week despite the signing of the US$1.5 billion loan agreement with the Asian Development Bank (ADB) and a new accord with the International Monetary Fund (IMF), stock analysts and brokers said.
They said that even though the two agreements were positive in nature, they would not be able to immediately improve investor sentiment toward the country's battered market.
The Asian Development signed a $1.5 billion loan accord with the Indonesian government Friday to finance the country's budget deficit and strengthen the balance of payments following an accord signed between the IMF and the Indonesian government the previous day.
But the IMF executive board has yet to confirm the disbursement of the next $1 billion tranche; its decision is expected in the middle of next month.
The IMF has already disbursed $4 billion out of its $10 billion commitment, which is part of the total $43 billion bailout package pooled together by the IMF, ADB, World Bank and other major donors.
Head of research of SG Securities Indonesia Goei Siauw Hong said that despite such positive news, offshore fund managers remained cautious over the country's political and social uncertainty.
"The country is not only struggling to fight against the economic crisis but political crisis too," he said pointing out political measures introduced by the government so far had not yet borne any fruit.
He said that the country's macro-economic outlook with inflation predicted to skyrocket to 85 percent and economic growth at minus 15 percent this year would further discourage foreign investors from flocking to Indonesia.
"Indonesia's problems are so huge that it has to address both economic and political crises at the same time," he said.
Head of research of Mashill Jaya Securities Tjandra Kartika shared Hong's view, saying that the country's efforts to escape from of its dire economic predicament were being hampered by mounting concern over political and social instability at home.
"Investors gave a cool response to the two accords last week because they still have fears over the country's political and social uncertainty," he said.
Rupiah
The rupiah remained weak closing at 14,800 on Friday, 400 points lower than the previous close at 14,400 and stock prices on the local exchange remained relatively unmoved last week.
"This indicates that foreign investors are not impressed with the progress in the country's political situation," he said.
He said that fears over possible social unrest due to soaring unemployment and escalating prices of basic essentials would further affect the country's economic outlook.
Riot
Reports late last week that dozens of rioters attacked and damaged a shopping center in Samarinda, East Kalimantan, after hundreds of fishermen set fire on trawlers, warehouses and an office in Gabion, Medan, North Sumatra.
"Rising unemployment and higher prices will likely trigger similar riots in the coming months," another analyst said.
Another analyst said that certain local investors, mostly ethnic Chinese, who fled the country in May after massive riots and looting in Jakarta, had not returned home yet because they were still unsure the country's political and social security.
"These people took between US$10 billion and $25 billion with them overseas," he said.
Most stock brokers said that trading activities on the local bourse would be quiet this week with most local investors placing orders for short-term speculative trading.
"Daily trading volumes and transactions will continue to decline to around Rp 100 billion now compared to Rp 500 billion before the crisis began last year," a broker with a local securities firm said.
The JSX Composite Index closed 5.42 points or 1.2 percent higher at 430.87 last week from 425.45 points the previous week.
But daily average turnover fell 24 percent to 182.97 million shares changing hands last week from 242.42 million the previous week.
Daily transaction value also fell sharply, by 50 percent, to Rp 161.39 billion (US$11.13 million) last week from Rp 325.61 billion the previous week. (aly)