Bank Indonesia Ready for Rate Rise to Stem Inflation

Francezka Nangoy | January 14, 2011
Bank Indonesia Governor Darmin Nasution, pictured, said on Friday that the central bank was prepared to raise interest rates for the first time since 2009 due to rising inflation. (Bloomberg Photo) Bank Indonesia Governor Darmin Nasution, pictured, said on Friday that the central bank was prepared to raise interest rates for the first time since 2009 due to rising inflation. (Bloomberg Photo)

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didikarjadi
6:31am Jan 15, 2011

We know that corruption is a major cause of poverty, but does it also part of the cause of inflation?

Both Zimbabwe and Burma have massive inflation that is caused by corruption. Although Indonesia's corruption is nowhere near that of these two countries, it is pretty bad, and cannot have a positive effect can it.

Is corruption actually crippling us?

* 1

Jakarta. Bowing to market pressure, Bank Indonesia on Friday indicated it was ready to raise interest rates for the first time since 2009 to tame rising inflation, the bank’s governor said.

“The direction is to raise rates but it will depend on inflation,” Bank Indonesia Governor Darmin Nasution told reporters on Friday. “BI is ready to find the appropriate time to increase the BI rate.”

Investors and market players have been urging the central bank to adopt a tighter monetary stance, including by raising its benchmark interest rate which had been kept stagnant at a record low of 6.5 percent for the past 18 months.

“Inflationary pressures will continue to pick up and will affect core inflation,” Nasution added. However, he said he was confident the government would take appropriate measures to contain prices of commodities such as rice.

Food prices have risen sharply since December and economists have warned that headline inflation would translate into core inflation if the central bank did not act urgently. Both the International Monetary Fund and the World Bank also said this week that inflation and capital flight were serious threats to the economy.

Inflation hit a 20-month high in December, adding to investors’ concerns that BI’s dovish stance may leave it too far behind the curve in tamping down price pressures.

Darmin’s comments were echoed by Diffy A. Johansyah, BI’s head of public relations, in a telephone interview with the Jakarta Globe.

“Bank Indonesia is ready to raise interest rates if inflation starts to build up,” Diffy said. However, he added the central bank has not decided on when and by how much it would raise the rate.

“We still have to calculate how much we shall raise it according to the policy mix,” he said. “All monetary instruments should be evaluated and weighed so they will be balanced and not negatively affect each other.”

Core inflation, inflation figures excluding volatile items such as food, which is used by the central bank as the benchmark to raise interest rates, stood at 4.28 percent in December. Central Bank officials said that the danger threshold began at 5.0 percent.

Fauzi Ichsan, an economist at Standard Chartered, said earlier this week that food inflation could translate into core inflation as high food prices affect prices of other goods that are included in the core inflation.

“Food inflation could translate into core inflation within three months. BI should raise the interest rate by 100 basis points to 7.5 percent,” he said.

Destry Damayanti, chief economist at Mandiri Sekuritas, concurred but added that core inflation could rise faster, perhaps within a month.

“If the food inflation is persistent, we can see the effect within a month,” Destry said.

She said the central bank should raise the interest rate in the second quarter, and should add 50 basis points to the current interest rate, raising the benchmark rate to 7 percent.

Destry also said that the effort of calming down the inflation should not come only from the central bank, but also from the government, by ensuring adequate food supply.

Over the past few months, prices of chili and rice have spiked sharply, increasing by more than four times.

“Government policy and monetary policy should complement each other, so that this kind of situation can be anticipated,” Destry noted.

http://www.thejakartaglobe.com/home/bank-indonesia-ready-for-rate-rise-to-stem-inflation/417114

Businesses in Indonesia Anticipate Tough Year of Inflation

Dion Bisara, Faisal Maliki Baskoro & Francezka Nangoy | January 11, 2011

Regional Development Bank Targets Rp 2 Trillion in Bond Sale 9:21pm Jan 11, 2011

18 Firms Target Indonesian Automotive Industry 9:12pm Jan 11, 2011

Garuda Seeks New Wings, Up to $500 Million in IPO 9:11pm Jan 11, 2011

Bank Indonesia’s Stance Draws Further Concern 8:32pm Jan 11, 2011

Indonesia's Garuda to Sell 36.5 Percent Stake in IPO: Sources 5:06pm Jan 11, 2011

As inflationary concerns build and foreign investors pull out of Indonesia, local companies are bracing for a tough year.

“We’re not as optimistic as the government. With rising inflation, uncertainty in the electricity rate hikes and increasing oil prices, it will be good if the economy can expand by 6 percent this year,” said Sofjan Wanandi, chairman of the Indonesian Employers Association (Apindo).

“Inflation will not just affect companies’ sales, but will also boost operating costs. Companies have taken inflation into account to calculate labor wages.”

The International Monetary Fund, which provided Indonesia billions in assistance during the 1998 financial crisis, has warned that core inflation could accelerate and non-food prices could rise if food prices continue on their current course.

Jongkie Sugiarto, president director of Hyundai and vice chairman of the Indonesian Automotive Industries Association (Gaikindo), said he would monitor Bank Indonesia’s policy rate and inflation rate in the coming weeks before revising any targets.

“So far there’s still no revision [on car sales],” he said. Gaikindo has forecast national car sales to rise by up to 15 percent this year to more than 800,000 units, though that is based on the central bank keeping its rate at 6.5 percent and “inflation rates remaining at a controllable level.”

Gunawan, director of Indomobil Finance Indonesia, a financing company that focuses on car and motorcycle loans, said the company was confident about its sales target this year.

Even if the benchmark rate went up, he said, “Indonesians will still have the purchasing power to get cars or motorcycles.”

Erna Esti Utami, marketing manager of Farmers Market, also voiced optimism that people would still be able to shop.

“The only changes might be a switch from premium goods to second-line goods,” she said.

Bank Indonesia kept its benchmark rate at a record low 6.5 percent last week.

http://www.thejakartaglobe.com/business/businesses-in-indonesia-anticipate-tough-year-of-inflation/416393

Indonesia Will Eliminate Tariffs on Imports of Wheat

farmIndonesia will eliminate tariffs on imports of wheat, soybeans and cattle feed, said on Friday by the chief minister of economy, in an attempt to improve household food supply and forestall possible protests over the escalating prices. As it is known, Indonesia is on of the developing country in South East Asia that has so many resources of fiber food.

“The measure will take effect next week,” said Hatta Rajasa in a press conference after the Cabinet met this week to discuss the stability of food prices. The official said he had not decided on the elimination of tariffs on sugar.

Indonesia, the largest economy in Southeast Asia depends on imports of sugar, soybeans and wheat, and sometimes the imports of rice and corn. Protests over food prices are considered as a factor behind the fall of Suharto in 1998. Rising food costs drove annual inflation to seven percent in December, the highest level in 20 months.

The Organization of the United Nations Food and Agriculture (FAO) said on Wednesday that food prices rose to a record last month, which exceeded the levels in 2008 generated a series of raids in several countries . The government expects food prices they yield local harvest begins in February.

http://www.coffetoday.com/indonesia-will-eliminate-tariffs-on-imports-of-wheat/908047/

INDONESIA’S ECONOMY ACCELERATING: AIRPORTS BURSTING AT THE SEAMS

Along with Indonesia’s economic growth which is expected to exceed 6% this year, the country’s air transportation has grown commensurately at a very rapid pace between 15%-20% per annum. If in 2004, Indonesian airlines handled 23.7 million passengers, this increased to 43.8 million in 2009, at an 82% average airline load factor. Among these, private airlines carried 80% share of total passengers. With increased competition, domestic airfares have also dropped, thereby opening access to wider segments of income groups, wrote Danang Parikesit, Chairman of Indonesia’s Transportation Society in Bisnis Indonesia.

As consequence of such rapid growth, airports have fast exceeded the capacity for which they were originally built. Jakarta’s Soekarno-Hatta international airport, which was constructed 20 years ago with its open green gardens and envisaged to handle 22 million passengers per year, must today handle no less than 40 million passengers. While the Juanda airport in Surabaya, originally built to handle 6 million passengers, already handles 11 million today. Bali’s Ngurah Rai airport which was built for 1.5 million passengers, today handles 9.5 million per year. The same situation is in Medan with its Polonia airport, which was built to cater to 0.9 million people, must now handle 4.9 million. The only international airport that is within its capacity is the Sultan Hasanuddin Airport in Makassar, which was built for 7 million passengers, but today receives 5 million per year, reports Bisnis Indonesia.

With Indonesia’s expected accelerated economic growth next year, it is obvious that these airports must be expanded very soon, other additional supporting airports built in the vicinity, or other solutions found.

Therefore, in Bali, a new terminal is being constructed with an investment of Rp. 1.9 trillion, which is expectd to be operational by March 2013, giving ample time before the APEC (Asia Pacific Economic Coooperation) Summit in 2013. When completed, the airport will have a total capacity of handling 15 million passengers per year.
On 27 December, the Ministry of Transportation signed an MoU with the Miinistry of Culture and Tourism to build a 565 km. railway system around Bali to spread tourism more evenly throughout the island, work on which is to begin in January 2011.
Minister for Culture and Tourism, Jero Wacik, said that this year alone more than 2.3 million visitors or 30% of total tourist arrivals to Indonesia spent their holidays on Bali. While Bali Governor Mangku Pastika estimates that by 2015, Bali will receive 5 million tourists, so that infrastructure needed must be built urgently.
While in Surabaya, Indonesia’s second largest city, the government plans to re-operate the old Juanda airport.

In Medan,North Sumatra, the new Kuala Namu international airport is in construction, since Polonia airport is anyhow already too close to the city. The government has also opened the tender for the construction of the 60 km toll road between Medan and the new Kuala Namu airport.

While, for the capital city Jakarta, one supporting airport to the Soekarno-Hatta international airport is the Halim Perdanakusumah airport, which is an Air Force base and is primarily used for VIP planes or at times serves as an emergency back-up airport. The national government is looking at the Pondok Cabe training airport to expand into a commercial airport, but the provncial government of Jakarta is reported to be against this plan.

Meanwhile, therefore, for Jakarta, in order to ease traffic congestion in the air as well as for better passengers handling on the ground, the government plans to review flight slots at Jakarta’s Soekarno-Hatta airport. Golden time periods for airlines here are between 5.0 am to 9.0 am in the mornings and between 4.0 pm and 8.0 pm in the evenings. During these times the airport handles near to 60 flights an hour, reports Bisnis Indonesia. Therefore, the authorities plan to spread out arrival and departure times of planes. This measure, however, has the airlines very concerned , hoping that slots will be distributed fairly among all airlines.

Meantime, Jakarta’s airport at peak time today too often resembles a busy railway station which is jammed with people, and is far from looking like a distinguished nternational airport that a capital city deserves.
Earlier, detik.com reported that Vice President Boediono had held a coordinating meeting in October on national transportation. Among issued discussed was the need for improved management of airports and additional infrastructure urgently required to cater to the soaring number of passengers that airports must handle today. In this context it was decided that Jakarta’s Soekarno-Hatta airport will be added with two runways and one more terminal
To ensure the safety of air, land and sea transportation the Committee for Transport Safety (KNKT) will be directly accountable to the President and no longer directly to the Minister for Transportation.
Furthermore, Regulations will be drawn whereby airlines must use e-ticketing. Its implementation will be discussed with the airlines.
Additionally, it must be ensured that all airport runways, aprons and terminal are sterile from unauthorized personne and passengers’ waiting areas freed from touts, and unauthorized sales persons.
While in order to ensure air safety, the government will form a separate company in charge of air navigation so that this will no longer be the responsibility of the airport authority.
(Sources: Bisnis Indonesia, detik.com )

Analysis: Indonesia: Year in review

Josh Franken, Oxford Business Group | Mon, 12/27/2010 11:00 AM |
As the year comes to a close, Indonesia can look back on 2010 with no small degree of satisfaction. The economy is performing well, foreign investment is on the rise and there is continued political stability. However, concerns linger over rising inflation and the sustainability of the current growth cycle.

Late into the last month of 2010, all indicators were that the targets set by the government for economic development would be met, with GDP on track to expand by 6 percent or more.

Recognition of this growth, and the underlying strength of the economy came late in the year, with Moody’s Investors Service announcing it was considering upgrading Indonesia’s credit ratings, having already issued a positive outlook note for the government’s Ba2 foreign and local-currency bond ratings in June. A further ratings hike would take Indonesia close to being an investment grade economy, reflecting the health of country’s macroeconomic balances and its ability to withstand localized or international shocks.

Though nowhere near to being classified as a shock, Indonesia’s creeping inflation remained an unwelcome reality in 2010. According to figures issued by Bank Indonesia in late December, year end inflation could reach 6.5 percent, far higher than the 2.78 percent recorded in 2009. Having climbed steadily throughout the year, the consumer prices rises reached 6.33 percent as of the end of November, prompting central bank deputy governor Hartadi A Sarwono to say further expected increases in the cost of staples such as palm oil and rice could push inflation higher still.

Though core inflation, which excludes items such as food, stood at 4.31 percent at the end of November, rising consumer demand in a heating economy could see this measure spike, which in turn could force Bank Indonesia’s hand on interest rates. Hartadi told journalists on Dec. 22 that if core inflation topped 5 percent the central bank would have no alternative but to raise rates.

Should Bank Indonesia move, it will be the first time since August 2009 that there has been any change from the 6.5 percent the central bank set as its prime lending rate, a record low for the country.

While Bank Indonesia has kept its own rates at record lows, not all the benefits of this policy have been passed on to the economy, with banks holding their lending rates far above those of the central bank. As the year closed, most lenders were charging between 13 and 14 percent, a rate many analysts felt was up to 4 percent above what would best serve to maintain and indeed increase economic growth in 2011 and beyond.

Up to the end of September, the flow of capital into the economy showed no sign of abating, with foreign direct investment totaling US$6.7 billion, well up on the $1.9 billion for the first nine months of 2009. Meanwhile, the tide of portfolio capital hit $14.45 billion, more than $4 billion above the level for the same period last year.

Most of that $14.4 billion was directed towards either government bonds, which attracted some $10 billion, or to Bank Indonesia’s SBI debt papers, which drew a further $2.37 billion, the balance going into shares on the stock exchange.

That inward flow of investment, combined with the exchange’s appeal to locals, saw the market’s main index up by some 40 percent as the year closed, making the Indonesian exchange one of the most active and best performers worldwide in 2010. Though some experts forecast there will be a slowing of activity and earnings next year, the projection of a further 15 percent or more increase is still a strong one, and well over the 6.3 percent growth forecast for GDP as a whole.

Looking ahead, Indonesia will face a number of challenges going into the new year, with inflation being one of the main concerns. Though the government agreed in mid December to defer reductions on fuel subsidies, price support for petrol will be scaled back starting in March, a move that will both ease pressure on the budget but could also push up inflation. Combined with the ever present threat that climatic conditions could again hit crops, as happened in mid 2010, and global pressures on commodities could increase, there is a degree of uncertainty over next year’s inflation forecasts.

Another threat to Indonesia is the possibility of the global economy, or at least the economies of some of Jakarta’s larger trading partners, slipping back into recession or even just slowing down a gear. With the US economy still recovering from the 2008 economic meltdown, and the recent uncertainty over the fiscal health of the European periphery there is the risk of a further bout of instability. While Indonesia was able to comfortably ride out the last round of stormy economic weather, it will be hoping its there aren’t too many clouds on the international horizon in 2011.

RI likely to miss inflation target

Alfian, The Jakarta Post, Jakarta | Mon, 12/20/2010 12:13 PM | Business

The government says it will be difficult to meet this year’s inflation target of 5.3 percent, explaining that extreme weather had resulted in soaring food prices

“I must admit that it is hard for us to meet the inflation target of 5 plus minus one as the extreme weather has had a significant impact on our food (prices),” Coordinating Economic Minister Hatta Rajasa said Friday evening.

The revised 2010 state budget sets the inflation target at 5.3 percent, while the central bank has forecast an inflation rate of between 4 and 6 percent. In 2011, the state budget also sets the inflation assumption at 5.3 percent. When asked to what extent the current extreme weather would affect next year’s inflation target, Hatta said the government “was still optimistic” about the next year’s assumption.

Earlier this month, the Central Statistic Agency (BPS) said November’s inflation was “worrisome” and “only a miracle could see the target met”. The agency announced that the inflation rate rose 5.98 percent from January to November this year, while year-on-year inflation stood at 6.3 percent in November, breaching the central bank’s maximum target of 6 percent.

The BPS said the higher inflation was triggered by higher commodity prices, particularly rice prices, which contributed the most to November’s inflation rate. Hatta said the government had taken several measures to control staple food prices, including importing rice to maintain supply.

Meanwhile, Bank Indonesia (BI) Governor Darmin Nasution said that this year’s inflation rate may likely surpass 6.5 percent, but next year would not pass the rate forecast of between 4 and 6 percent, as “it will be in the range of 5 plus minus 1 percent”.

BI predicts next year’s inflationary pressure to remain heavy, but the rate will not be as high as this year, Darmin says.

“In the future, inflationary pressure will remain relatively heavy, but the inflation rate will not be as high as this year. The supply side of our economy, including production of goods and infrastructure projects, will be higher,” he told reporters at BI headquarters in Jakarta on Friday.

The inflation rate reached 5.98 percent up to November of this year, nearing the central bank’s higher-end target of 4 to 6 percent for the entire year of 2010.

BI director for monetary policy research Perry Warjiyo explained that next year’s inflationary pressure would mostly come from core inflation instead of volatile food and administered prices like this year.

“Inflationary pressure will be fundamental next year,” he said, predicting a higher challenge for policymakers to respond as liquidity pressures will also come from surging capital inflows that are expected to continue until next year. (est)

Bank Indonesia: Core Inflation May Speed Up In 2011, 2012

DJ
13-Dec-2010
JAKARTA (Dow Jones)--Indonesia's core inflation may accelerate in 2011 and 2012, Bank Indonesia said Monday, raising the possibility of a policy rate increase in the near term.
"The high (inflation) pressure during 2010 was mostly explained by volatile food inflation and administered prices, while core inflation has been controlled. Going forward, there is potential increase in core inflation in (the) year 2011 and 2012," the central bank said on its website without providing reasons for the expected increase.
Core consumer prices, which exclude volatile prices for items like foodstuff, rose by 4.31% in November from a year earlier, speeding up from 4.19% in October.
Meanwhile, inflation stood at 6.33% in November, above the central bank's target range of between 4% and 6%, and accelerating from October's 5.67%.
Earlier in the day, Bank Indonesia's Deputy Governor Hartadi Sarwono said that December inflation will likely reach 6.5%, adding pressure on the authorities to act to rein in prices.
Bank Indonesia has kept its key policy rate steady at 6.5% since August 2009. While many central banks in neighboring countries have moved to raise rates to curb inflation, Bank Indonesia has kept its rate unchanged due to worries it may attract more capital inflows, which will complicate its liquidity management.
Several analysts said that the central bank will likely choose to take administrative measures to absorb liquidity and prevent sudden reversal of the inflows before raising its policy rate.
Sarwono earlier in the day said "now is not yet the time to increase interest rates."
Analysts are divided on the timing of the first rate move, but some forecast it to be as early as the first quarter of next year.
-By Andreas Ismar, Dow Jones Newswires; 62 21 39831277; andreasismar.sandiwan@dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=wq9Gt7V4VL0%2BVxnnum8Zjw%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires

DJ Bank Indonesia Official: Won't Use Rate Hike To Fight Inflation

13-Dec-2010
JAKARTA (Dow Jones)--Bank Indonesia won't raise interest rates to fight inflation for now, even though year-end inflation is expected to be breach its target, Deputy

Governor Hartadi Sarwono said Monday.
"We are aware of the (rising) inflation," Sarwono told reporters. "Now is not yet the time to increase interest rates."

Instead, Sarwono said Bank Indonesia will continue to reign in inflation by absorbing excess liquidity, such as by increasing commercial banks' reserve requirements and through open money market operations.

The central bank has so far been reluctant to raise interest rates for fear of attracting further inflows of so-called hot money.
Sarwono said December inflation will likely reach 6.5% on year and 0.5% on month.
Bank Indonesia has an inflation target this year of between 4% and 6%.
-By Farida Husna; contributing to Dow Jones Newswires; 62-21 39831277; I-Made.Sentana@dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=wq9Gt7V4VL0%2BVxnnum8Zjw%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires

Plan to Ban Pump Subsidies Likely to Cost Indonesia's Drivers Plenty

Ririn Radiawati | December 03, 2010
Motorists in the capital may have to resort to Pertamina’s more expensive, higher-octane Pertamax fuel or fill their tanks at the state energy company’s competitors. (JG Photo/Safir Makki) Motorists in the capital may have to resort to Pertamina’s more expensive, higher-octane Pertamax fuel or fill their tanks at the state energy company’s competitors. (JG Photo/Safir Makki)


Jakarta. All private car owners in Jakarta who fill up on subsidized fuel may see their bill at the pump rise by nearly 50 percent as the government, hard-pressed to ease the burden of subsidies on the budget, is likely to bar access to cheap fuel as of the New Year.

“All private cars will likely have to use non-subsidized fuel starting next year,” Ibrahim Hasyim, a top official of the downstream energy regulator BPH Migas, told reporters on Thursday.

If the plan goes ahead as expected, all private cars will not be allowed to purchase state-subsidized fuel, sold at state oil and gas company Pertamina’s stations, Ibrahim said.

Motorcycles and public transportation vehicles, the latter designated by yellow license plates, will be exempted from the ban.

All government cars and those owned by state-owned enterprises will also have to use unsubsidized fuels.

The ban would first be implemented in Greater Jakarta, including the capital and the surrounding regions of Bogor, Tangerang, Depok and Bekasi.

It would be later expanded to cover the entire island of Java as well as Bali in July.

The government estimates that the move might save it a relatively paltry Rp 8 billion ($900,000) in subsidies on about 10 percent of the 38.5 million kiloliters of subsidized fuels to be sold next year.

Pertamina marketing director Djaelani Sutomo said it would also begin to build stations for its unsubsidized high-octane Pertamax fuel for areas outside of Java and Bali in 2012.

“We are trying to start building Pertamax pumps outside Java and Bali,” he said, adding it was hoped that the pumps would be available in Sumatra and Borneo in 2012 and Sulawesi in 2013.

“East Timor and Papua have very limited subsidized fuel usage. So we can do them later,” Djaelani said.

Low-octane Premium gasoline and diesel are sold at Rp 4,500 a liter under the subsidy scheme. Pertamina’s non-subsidized Pertamax and DEX diesel are sold at Rp 6,500 and Rp 7,400 per liter, respectively.

Without subsidies, fuel prices fluctuate with global oil prices. The two foreign fuel giants operating in the country, Shell and Petronas, sell at similar prices.

The government had earlier come up with several schemes to reach its aim to totally eliminate fuel subsidies by 2015, such as allowing subsidized fuels only for cars older than five years or for cars with an engine volume of less than 2,000 cubic centimeters.

The Energy Ministry, BPH Migas and Pertamina are now preparing the infrastructure and the legal framework to support the decision to downsize the subsidy scheme.

However, they still have to bring the plan up for debate at the House of Representatives next week.


Further coverage:
Editorial: Show the benefits, click here.
The impact on business, click here.

Bank Indonesia Mulls Dollar Reserve Hike for Capital Control

Dion Bisara | November 29, 2010
Bank Indonesia, seen in this file photo, is conducting research to determine whether to impose a higher dollar reserve requirement on lenders. (Bloomberg Photo/Dimas Ardian) Bank Indonesia, seen in this file photo, is conducting research to determine whether to impose a higher dollar reserve requirement on lenders. (Bloomberg Photo/Dimas Ardian)

Jakarta. In a bid to rein in hot money that threatens to unbalance the economy, Bank Indonesia is studying whether to impose a higher dollar reserve requirement on lenders, a central banker said.

The policy would compel banks to increase their dollar reserves to as much as 3 percent to soak up excess liquidity from a surge of foreign funds.

“In 2008, the central bank cut foreign exchange reserves statutory to 1 percent from 3 percent in order to pump foreign exchange liquidity into the market,” said Hartadi A. Sarwono, a BI deputy governor.

“We plan to bring it back to the level before 2008, perhaps not 3 percent but close to that,” he said, declining to specify a time frame for the policy’s implementation.

Starting on Nov. 1, BI required lenders to set aside 8 percent of their rupiah deposits as reserves, up from 5 percent.

The central bank also said it would introduce an additional reserve requirement in March that would penalize banks with loan-to-deposit ratios below 78 percent or above 100 percent.

BI has been wrestling with the surge in foreign funds as near-zero interest rates in the West and Japan have promoted investors to seek higher yields in emerging economies such as Indonesia.

Although foreign funds support growth, they drive up prices and have the potential to create asset bubbles that could burst, leading to a flight of capital.

“So much money chasing the same amount of goods will increase inflation,” Hartadi said. “The dilemma is if we increase the [benchmark interest] rate, it will increase inflows here. So we see an option to manage it by raising statutory reserves.”

The central bank has kept its benchmark interest rate at a record-low 6.5 percent since August last year to support growth.

The rate is one of the highest in Southeast Asia, making Indonesia into a key investment destination.

Chatib Basri, an economist from the University of Indonesia, welcomed the central bank’s moves, saying it was unlikely to increase the key rate in the short term since it would attract more hot money to the country.

Indonesia posted a surplus of $7 billion in the three months that ended in September, compared with $5.4 billion in the second quarter, according to central bank data.

Obama Given Rock Star Welcome In Jakarta

Cheering, Bakso and Friendship — An Indonesian Welcome Home for Obama
Armando Siahaan & Camelia Pasandaran | November 10, 2010
A welcome moment: US President Barack Obama is greeted by President Susilo Bambang Yudhoyono on his arrival at the Presidential Palace on Tuesday. (JG Photo/Yudhi Sukma Wijaya) A welcome moment: US President Barack Obama is greeted by President Susilo Bambang Yudhoyono on his arrival at the Presidential Palace on Tuesday. (JG Photo/Yudhi Sukma Wijaya)

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Jakarta. He’s famous for his coolness and dignified bearing, but on a showery Tuesday afternoon, US President Barack Obama touched down in Jakarta for the first time since his childhood to a welcome fit for a rock star.

His trip was twice postponed and threatened this time by Mount Merapi’s eruptions, but long-time Jakarta residents could not recall another foreign leader arriving to such fanfare.

Throngs of office workers braved city streets in the rain or peered from high-rise office blocks for a glimpse of Obama’s motorcade as it sped down an empty toll road and onto Jalan Sudirman en route to the Presidential Palace.

Magazine editor Ratna Dewi joined the crowd outside her office to catch a fleeting glimpse of Obama in Cadillac One, the US president’s virtually impregnable armor-plated limousine.

“Obama’s different from other leaders,” Ratna said. “He’s charismatic, he appeals to young people — and he’s one good-looking man!”

Countless others gathered around television screens as Air Force One touched down at Halim Perdanakusuma Airport after a flight from India, their screams echoing through hallways and living rooms as the American leader and the first lady, Michelle Obama, descended to the tarmac to be greeted by an honor guard of officials and soldiers.

Although he is beset by political troubles back home, the reception left little doubt that Obama remains a star in the city he called home between 1967 and 1971.

For his part, the former Menteng resident said he barely recognized the city.

“As I was driving down the streets, the only building that was there when I first moved to Jakarta was Sarinah,” he said at a joint press conference with President Susilo Bambang Yudhoyono.

“Now it’s one of the shorter buildings on the road.”

“When you visit a place that you spent time in as a child, as a president it’s a little bit disorienting.”

At the glittering state dinner that followed at Istana Negara — a place that, as a child from “Menteng dalam,” he said he never imagined he would one day enter — Obama thanked his hosts for the “bakso, nasi goreng, emping, krupuk.”

“Semuanya enak,” he said, praising the food to a crowd that included former President Megawati Sukarnoputri, who made her first visit to the palace since she left office in 2004 after a falling-out with Yudhoyono.

During the dinner, Yudhoyono conferred the Bintang Jasa Utama, the nation’s highest civilian honor, on Obama’s late mother, Ann Dunham Soetoro, for her work with NGOs in Indonesia.

“In honoring her you honor the spirit that led her to travel to various parts of the country,” Obama said. “I am deeply moved.”

But Obama emphasized that his visit was more than nostalgia.

“I’m here to focus not on the past, but on the future,” he said.

At the palace, Obama and Yudhoyono formally launched the Comprehensive Partnership Agreement, which is designed to enhance investment and trade between the two countries.

“Indonesia is one of the growing markets that we’re going to focus on as part of my initiative to double US exports,” Obama said.

Yudhoyono said the US was Indonesia’s third-largest trading partner, with trade valued at $21 billion in 2008.

But Obama wanted more. “We don’t like No. 3, we want to be No. 1,” he said.

Obama also stressed the importance of cooperation “in science and technology” to fuel growth and entrepreneurship. Yudhoyono called for enhanced cooperation on global environmental challenges.

Obama vowed to double education partnerships in the next five years, and to support Indonesia’s lead in tackling climate change.

He also praised Indonesia’s successful transition from a dictatorship to a democracy, and the work of civil society groups in fighting corruption and promoting human rights.

Obama also noted the existing partnership between Washington and Jakarta to combat terrorism and maritime piracy.

And as the visit comes in the wake of twin natural disasters that have rocked the country, Obama said he hoped his presence showed that “in good times and bad times the United States stands as a friend to Indonesia.”

The visit is also widely seen as a further attempt by Obama to reach out to the Islamic world.

“We don’t expect that we are going to completely eliminate some of the misunderstandings, mistrust developed over a long period of time, but we do think that we’re on the right path,” he said.

He reserved his harshest words for Israeli settlements in the West Bank, saying Israel’s decision to approve 1,000 new housing units in East Jerusalem sent the wrong signal.

“This kind of activity is never helpful when it comes to peace negotiations, and I’m concerned that we’re not seeing each side make the extra effort involved to get a breakthrough,” Obama said.

“Each of these incremental steps end up breaking trust.”

Obama is scheduled to make a major speech at University of Indonesia this morning, which is expected to help build warmer relations with the Muslim world.

There have been reports that Mount Merapi’s eruptions could cause him to leave before his scheduled afternoon departure for the G-20 summit in Seoul.

http://www.thejakartaglobe.com/home/cheering-bakso-and-friendship-an-indonesian-welcome-home-for-obama/405835

Obama May Find US Firms a Tough Sell in Indonesia

November 07, 2010
US President Barack Obama is planning to visit Indonesia this week in the hopes of improving business relations between the two countries. Analysts say he has his work cut out for him (AP Photo/Charles Dharapak) US President Barack Obama is planning to visit Indonesia this week in the hopes of improving business relations between the two countries. Analysts say he has his work cut out for him (AP Photo/Charles Dharapak)

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In plotting a path to boost US exports, the Obama administration has turned a keen eye to the trillions of dollars Indonesia and other Asian nations plan to spend on power plants, transportation and other infrastructure in coming years, expecting it to boost American makers of heavy equipment and other top companies.

But the view offered by Indonesian and business officials familiar with the country is more measured: Don’t bet on it.

China, Japan and South Korea have made deep inroads into the Indonesian market over the past 15 years, even as the United States slipped as a source of its imports, and nearby countries such as Malaysia and Australia are aiming to benefit from increasingly tight regional ties.

Often backed by government financing, firms from other Asian nations already are putting up the power plants, building the roads and coordinating major projects.

Local energy companies boast of importing new bulldozers and machinery from China, and when Indonesia announced the first 10 exploration contracts under a major geothermal energy program, US firms were held to a minor role — a disappointing outcome in a market the White House has set as a priority.

As part of an effort to kindle the American presence, President Obama has scheduled a two-day stop here, beginning Tuesday, on his tour of Asian nations considered vital to the US economy.

The Obama administration hopes to double total US exports in the next few years to generate American jobs.

The administration has identified six countries where officials believe the United States can do better, and Indonesia is by far the biggest of those target markets.

US firms are long-established here in the energy and mining industries, and Boeing is in the midst of supplying upstart discount carrier Lion Air with dozens of new planes.

The latest group of 30 aircraft was financed with help from the Export-Import Bank.

But US officials say that recent regulations adopted by Indonesia — rather than opening the market in areas of US expertise — have heightened restrictions on industries important to US exports, such as pharmaceuticals, energy and telecommunications. Indonesia has long favored local companies over foreign ones.

It also coaxes foreign business partners to create jobs locally rather than back home.

Several new Indonesian policies aim at reinforcing those trends, according to a recent Commerce Department report.

“The Indonesian government has not really decided what role it wants the private sector to play,” said James Castle, a longtime business consultant here and vice president of the American Chamber of Commerce in Indonesia.

He said Indonesia gives an edge to companies from countries willing to grant concessions.

Other nations “come with money to support their businesses. The US government does not, then we complain about access,” Castle said, pointing to Japan’s commitment of $54 billion to improve roads and shipping facilities.

As the world’s largest Muslim country, Indonesia figures prominently in US thinking on Asia.

Indonesia’s economic policy remains a work in progress. Some here describe it as “plutocrats versus technocrats” — with certain government agencies pushing to open the economy while others hew to economic nationalism or work to protect influential local interests.

The recent anticorruption drive might in theory make competition fairer, but it has also created difficulties.

Some contracting officials are now so price-sensitive — for fear of being accused of taking kickbacks — that US and European firms whose higher-quality goods and services are relatively expensive are put at a disadvantage.

New power plants built by Chinese firms, for example, came cheap but rely on outmoded coal technology, local officials say.

Yet there is enormous commercial potential in helping Indonesia develop its infrastructure.

The needs are stark, requiring about $218 billion over the next five years, according to the state planning agency. Jakarta, an ill-planned megacity of roughly 10 million, can’t generate enough electricity.

The capital’s badly congested transportation system needs redesign and expanded public transit.

The country’s rail system is overburdened and its ports inadequate.

Planning Minister Armida Alisjahbana said the government can only pay for about a quarter of what Indonesia needs.

So when a country such as Japan comes along offering to help build a light-rail line to the airport or a subway for Jakarta, there’s a receptive audience.

Bids for initial subway work are to go out next year, said one Indonesian official.

But under the terms of the financing offered by the Japanese, only Japanese firms can compete.

Indonesian officials, heartened by their country’s success in avoiding the worst of the global economic crisis, see little reason to lighten up and give foreign companies a free pass to sell exports here.

“The Americans who come here are doing well,” said Sofjan Wanandi, chairman of the Employers Association of Indonesia, a business lobby.

“But they only want to sell. We want investment and added value. Put a refinery here. Put a petrochemical plant here. Negotiate.”

http://www.thejakartaglobe.com/business/obama-may-find-us-firms-a-tough-sell-in-indonesia/405411
The Washington Post

Bank Indonesia Keeps Key Rate at 6.5% as Inflation Stays in Control

Muhamad Al Azhari & Dion Bisara | November 05, 2010

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Jakarta. The central bank announced on Thursday that it was keeping its key interest rate at 6.5 percent on expectations that inflation will remain under control. An analyst suggested the move was to stabilize flows of “hot money.”

Bank Indonesia’s decision came a day before the Central Statistics Agency (BPS) releases third-quarter growth data.

Analysts, the Finance Ministry and BI believe the $540 billion economy expanded at a faster pace than in the second quarter.

The bank has been hesitant to hike its interest rate, leaving it at a record low to for 15 months to support growth despite the threat of higher inflation.

“With improving economic performance and easing inflationary pressures, BI concluded the 6.5 percent rate is consistent with its inflation target of 4 to 6 percent,” said Johanna Chua, an analyst from Citigroup.

“It believes it is conducive to maintaining monetary stability while encouraging banks so that accelerating demand growth can be met with sufficient supply.”

Indonesia’s inflation rose to 5.67 percent last month compared with the year before, down slightly from 5.8 percent in September. 

“In a similar tone with last month, BI signaled it will continue focusing on liquidity management measures in the face of strong capital inflows and excess liquidity,” said Helmi Arman, an economist from Bank Danamon.

“This implicitly rules out the possibility of any rise in the very near future.

“With core inflation still at around 4.2 percent in October [far lower than the 5.7 percent headline rate], BI’s tone on inflation appears to be still relaxed.

The risks cited mainly involve supply-side issues of food and seasonal pressures, which is more or less in-line with our own assessment.”

However, Gundy Cahyadi, a Singapore-based economist from OCBC Bank, said: “This is not to say that BI is not, or should not be, concerned about inflation.

"If we consider imports growth as an indication of the strength in domestic demand, we see the likelihood that inflation may surge to 7 to 7.5 percent in the next six months or so.

“If commodity prices were to rise higher in line with a stronger global economic recovery in the latter part of 2011, our expectation should not be ruled out, and we see the need to anchor inflationary expectations going forward.”

Helmi added that BI may have had foreign inflows in mind by keeping the rate steady.

“In a similar tone with last month, BI signaled it will continue focusing on liquidity management measures, in the face of strong capital inflows and excess liquidity. This implicitly rules out the possibility of any policy rate hike in the very near future.”

Indonesia’s key rate stands at 6.5 percent, the highest in the region, making it especially attractive to investors seeking gains.

Raising the rate could draw even more foreign capital to a market already flooded in such funds.

Foreign holdings of Bank Indonesia Certificates (SBIs) have jumped 63.6 percent to Rp 73.4 trillion over the same period, accounting for 32.6 percent of the total SBIs.

Gundy said the third-quarter GDP figures due today were likely to show 6.2 percent year-on-year growth, “setting the course for full-year growth to meet the government’s revised estimate of 6 to 6.2 percent.”

http://www.thejakartaglobe.com/business/bank-indonesia-keeps-key-rate-at-65-as-inflation-stays-in-control/404996

JCI at Record Close, Rupiah at 40-Month High After G-20 Meeting

October 25, 2010
After two weeks of consolidation, the Jakarta Composite Index jumped 45.75 points, or 1.3 percent, to close at 3,643.49. (Antara Photo) After two weeks of consolidation, the Jakarta Composite Index jumped 45.75 points, or 1.3 percent, to close at 3,643.49. (Antara Photo)

Jakarta. Indonesia’s benchmark stock index closed at a record high on Monday, and the rupiah hits its strongest level in more than three years, following the Group of 20 meeting in South Korea.

After two weeks of consolidation, the Jakarta Composite Index jumped 45.75 points, or 1.3 percent, to close at 3,643.49. About 5.9 billion shares worth Rp 5.1 trillion ($571.6 million) changed hands. Gainers outnumbered decliners 135 to 78.

Fauzi Ichsan, of Standard Chartered Bank, said investors were encouraged by the efforts of G-20 members to avoid a currency and trade war.

He said the JCI was projected to reach 3,800 by the end of the year, and perhaps climb to 4,500 next year.

Meanwhile, the rupiah traded at 8,896 versus the US dollar as of Monday night, its strongest level since June 2007, on optimism that Bank Indonesia will tolerate further appreciation after the G-20 members pledged to avoid weakening their currencies to support growth.

The currency has gained 5.2 percent this year.

Member countries of the G-20, including Indonesia, agreed to refrain from “competitive devaluation” and let markets set foreign-exchange values at a weekend meeting in Seoul.

“The rupiah gained as a result of the G-20 outcome,” said Enrico Tanuwidjaja, an economist at OSK-DMG Group in Singapore.

“That suggests this currency war concern should not be over-emphasized and competitive devaluation will not be desirable.”

On the stock exchange, Astra Agro Lestari, Indonesia’s biggest plantation stock, rose 6.2 percent to Rp 25,800.

It was its highest close since July 2008, as palm oil for January advanced to the highest level in 27 months, rising 2.5 percent to 3,079 ringgit ($996) a metric ton on the Malaysia Derivatives Exchange.

Bakrie Sumatera Plantations rose 2.5 percent.

Thomas Arifin, treasury director of Bank Mandiri, said the company had agreed to take over the Domba Mas Group’s debt owed to Bank Mandiri.

Bank Danamon Indonesia, owned by Singapore Temasek Holdings and Deutsche Bank, advanced 6.4 percent to Rp 6,700, the highest since November 2007.

Danamon was upgraded to “buy” from “neutral” by UBS’s Joshua Tanja, who cited stronger-than-expected loan growth.

Petrosea, an engineering construction and mining services company, rose 3.8 percent to Rp 41,500.

The company said it would provide mining services to Kideco Jaya Agung under a five-year contract worth $200 million. 


Bloomberg & JG

http://www.thejakartaglobe.com/business/jci-at-record-close-rupiah-at-40-month-high-after-g-20-meeting/403209

Bank Indonesia Happy With Rupiah’s Gains, New Measures Not Yet Needed

Novrida Manurung & Rishaad Salamat | October 08, 2010

Jakarta. Bank Indonesia says it has no plans to curb capital inflows and is not worried about the rupiah’s gains, signaling it considers current measures sufficient to cope with funds that are coming into the economy.

The rupiah’s current strength is not a concern “at the moment,” Muliaman Hadad, a central bank deputy governor, said in an interview with Bloomberg Television on Friday.

He added that there were no plans to follow Brazil’s lead to stem gains by increasing taxes on foreign investors.

The Indonesian currency was little changed this week on speculation the central bank would intervene to curb steep gains, which reached a three-year high of 8,900 to the dollar on Sept. 30.

Earlier that month, Bank Indonesia Governor Darmin Nasution said that any purchases of the US currency would be to “prevent the rupiah’s fluctuations from becoming too big.”

Policy makers from Brazil to South Korea have taken steps to cool gains in their currencies as investors pour money into emerging and Asian markets, where growth has outperformed that of most developed nations.

The Jakarta Composite Index has surged 40 percent this year, with steep gains in stocks such as Bank Central Asia and Indofood Sukses Makmur.

Bank Indonesia has kept borrowing costs at a record low, this week again putting off raising interest rates, which could spur more capital inflows into Southeast Asia’s largest economy.

“Strengthening is happening to all currencies in emerging markets,” said Juniman, chief economist at Bank Internasional Indonesia.

“We don’t need to worry about a strengthening rupiah. We see that BI is always in the market and may maintain the rupiah at about 8,900.”

Hadad said the central bank was monitoring the rupiah’s movements “very closely.”

“We’re trying to find a balance, the level that we think is appropriate to support our exports and also to maintain internal stability,” he said.

The nation’s foreign-exchange reserves climbed by $5.2 billion last month to a record $86.55 billion, the biggest increase since April, according to central bank data.

Meanwhile, Brazil this week doubled a tax it charges foreigners investing in fixed-income securities in a bid to stem gains in its real, while Seoul said banks involved in foreign-exchange transactions would face audits.

But Bank Indonesia has no plan to follow suit, Hadad said.

“We don’t think we would like to move from our current direction” of requiring purchasers of central bank notes to hold them for at least 30 days, he said.

The central bank maintained its reference rate at 6.5 percent for a 14th consecutive meeting on Tuesday, keeping the benchmark at the lowest level since its introduction in July 2005.

While BI Deputy Governor Hartadi Sarwono has said using the key rate to curb inflation might also attract funds and boost reserves, the central bank has instead used other measures to encourage investors to keep their money in the country and reduce volatility in capital flows and the currency, including ordering lenders to set aside more cash reserves to reduce money supply.

https://mail.google.com/mail/?hl=en&shva=1#inbox/12b8d981ddf0fb14

JCI Continues Record Roll After Late Rally Blunts Profit-Taking October 06, 2010

Jakarta. Indonesian stocks kept their impressive win streak alive on Wednesday, closing in record territory again thanks to a 13-point rally in the last five minutes of trading to offset sporadic profit-taking.

The Jakarta Composite Index rose 11.71 points, or 0.3 percent, to 3,603.40, its ninth-straight record close. Volume was heavy, with 9.6 billion shares worth Rp 8.83 trillion ($989 million) traded.

Decliners outnumbered gainers 132 to 89.

Saiful Adrian, an analyst at Ciptadana Securities, said he saw more upside ahead for the JCI despite the recent gains, which have seen the index climb 17 percent in the past five weeks.

He said profit-taking was relatively light, and predicted the index would reach 3,800 “in no time” given the strong economy and the global hunt for higher returns.

Metals producers advanced as prices continued to rise.

Timah, the country’s biggest tin company, rose 3.2 percent and Aneka Tambang, a state-run gold and nickel producer, advanced 2 percent.

Tin futures increased 1.9 percent to $26,412 a metric ton in London, set to extend Tuesday’s record.

Gold for immediate delivery jumped to a record for a second day, rising 0.6 percent to $1,348 an ounce in London.

Lippo Karawaci, the country’s biggest property developer, gained 4.6 percent on Wednesday, a day after soaring 8.3 percent on news that it would sell some of its malls, hospitals and hotels to raise capital in order to triple its assets by 2015.

Meanwhile, the rupiah gained 0.2 percent to 8,923 against the dollar as of the market’s close on Wednesday, contributing to this year’s 5.2 percent advance.

Analysts said the rupiah rally was triggered by unceasing demand for high-yielding assets in light of near-zero interest rates in Japan and the United States.

Bank Indonesia on Tuesday kept its benchmark rate at 6.5 percent for a 14th-straight month, while the Bank of Japan effectively lowered its policy rate to zero and pledged to buy up to $60 billion of assets.

The US Federal Reserve’s key rate is zero to 0.25 percent, and Chairman Ben S. Bernanke said on Monday that a first round of asset purchases had lifted the economy and further buying would likely help more.

“The American economy is still weak and the spread between the BI rate and the Fed funds rate is still wide,” said Rully Nova, a currency analyst at Bank Himpunan Saudara.

“That’s supporting a stronger rupiah.”

However, further gains in the rupiah could be limited if the central bank began selling the currency for dollars to counter the appreciation that was putting exports at risk, he added.

The nation’s foreign-exchange reserves climbed $5.2 billion last month to a record $86.55 billion, the biggest increase since April, the central bank reported on Wednesday.

“Bank Indonesia will intervene in the rupiah so it won’t quickly move below 8,900,” Rully said.

Foreign holdings of local-currency government bonds climbed by Rp 78.8 trillion this year to Rp 186.8 trillion as of Oct. 5, figures from the Ministry of Finance showed.

Overseas funds have pumped a net $2.4 billion into Indonesian shares this year, according to exchange data.

ADB Lifts Forecasts for Asia, Indonesia

The Asian Development Bank raised its forecast for the region’s economic growth this year, crediting a rapid recovery in exports even as it warned the risk of another recession in advanced countries had not completely receded.

The Manila-based development bank said on Tuesday it now expected developing Asia to grow 8.2 percent this year compared with a projection of 7.5 percent growth issued in April. The forecast, which did not include Japan, covered 44 developing and newly industrialized nations in Asia.

It forecasts Indonesia’s economy will expand 6.1 percent this year, faster than the previous projection of 5.5 percent.

“Overall, developing Asia’s recovery seems to have taken firm hold,” the ADB said in the report released in Hong Kong.

Increased consumer and business spending as a result of government stimulus also played its part in the recovery from the financial crisis, it added.

In predictions for individual economies, the ADB maintained its forecast of 9.6 percent growth for China, the world’s second-biggest economy.

South Korea and Taiwan were raised to 6 percent and 7.7 percent respectively. India’s anticipated growth was edged up from 8.2 percent to 8.5 percent, although the bank warned about high inflation due to scant monsoon rains in 2009 that suppressed harvests.

However, the ADB said governments should sustain the expansion by refraining from tightening fiscal and monetary policies “too quickly.”

“Shifting too quickly to fiscal and monetary tightening could heighten the risk of another contraction,” it said in the report.

India this month increased its benchmark interest rate for a fifth time this year.

Thailand in August raised its key rate and signaled further increases after the economy overcame political unrest to grow faster than estimated last quarter.

Taiwan, Malaysia and South Korea are also among those that have boosted borrowing costs.

Indonesia’s benchmark rate has been at a historic low of 6.5 percent since August 2009.

Developing Asian countries “are starting to raise interest rates, that means interest rate differentials between emerging Asia and industrialized countries will widen, that would attract more capital inflow,” said Jong-Wha Lee, the ADB’s chief economist.

The capital inflow presented “potential risk to the global economy” and “another threat to financial stability” should there be fund reversal, he said.

Meanwhile, inflation in Asia would generally be within central banks’ “comfort zones” and might average 4.1 percent in 2010 and 3.9 percent in 2011, the ADB said.

The bank also warned about possible weakness in the United States, Europe and Japan, highlighting sluggishness in the American housing market and the risk of sovereign debt defaults in Europe.

“The global recovery remains shaky, and downside risks lurk. The possibility of a double-dip recession in the major industrial economies has not receded completely,” the report said.

The bank called for more flexibility in the exchange rates of emerging currencies, including China’s yuan.

“I do think the emerging currencies in Asia need to be more flexible and probably need to appreciate against the G-3 currencies,” ADB president Haruhiko Kuroda said in reference to the US dollar, euro and yen.

Kuroda made the comment when asked whether the yuan should appreciate, amid claims from the United States that China was undervaluing its currency to boost exports.

“If you look at the US, Europe and Japan, their economies are recovering but their growth prospects in the medium to long-term are much lower than emerging Asia,” he said.

“That means that some exchange rate realignment would be necessary and already realignment is occurring in many parts of Asia.”

China pledged in June to loosen its grip on the yuan, which has been effectively pegged at about 6.8 to the dollar since mid-2008.

The United States maintains that Beijing is keeping its currency artificially low against the dollar to make its exports more competitive, and is showing increasing signs of frustration over the long-running row.

The US House of Representatives will this week vote on draft legislation that will open the way for retaliation against China over the yuan issue.


Bloomberg, AP & AFP

Jakarta Stocks Surge Higher on US Data, Rupiah Steady Near Three-Year High

Bloomberg & JG | September 27, 2010
World stocks rose modestly on Monday as improved United States indicators eased some worries. (Antara Photo) World stocks rose modestly on Monday as improved United States indicators eased some worries. (Antara Photo)

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Jakarta. The Indonesian stock market joined in a global rally on Monday as better-than-expected economic data out of the United States on Friday boosted confidence in the global economic recovery, pushing commodities prices higher.

The Jakarta Composite Index surged 70.41 points, or 2.1 percent, to close at 3,468.04, as it continued its march to a new all-time high. Volume was heavy, with about 6.97 billion shares worth Rp 6.24 trillion ($692.5 million) changing hands. Gainers trounced decliners 159 to 58.

The JCI has risen 19 percent in the third quarter, making it Southeast Asia’s third-best performer after the Philippines’ 22 percent and Thailand’s 21 percent over the period.

The region’s strong economic performance continued to lure foreign investors. Indonesia has recorded $1.39 billion of foreign buying so far in the third quarter, three times higher than the previous quarter.

Astra Agro Lestari, the nation’s largest listed plantation company, gained 2.1 percent to Rp 22,350, the highest close since April 28. Palm oil futures advanced 1.5 percent to 2,741 ringgit ($887) a metric ton in Kuala Lumpur, rising for a second day.

Astra International, Indonesia’s biggest automotive retailer, climbed 3.8 percent to Rp 58,100. Domestic vehicle sales in August rose to 64,762 units from 48,099 units a year earlier, Astra said, citing data from an industry association.

Astra Graphia, which sells and rents office equipment, jumped 24 percent to Rp 620, the steepest gain since April 2009. Kim Eng Securities said in a report on Monday that the company expected 2010 net income to rise 35 percent from a year earlier.

Tri Polyta Indonesia, producer of polypropylene, surged 13 percent to Rp 3,675, a record close.

Chandra Asri, also in petrochemicals, will be merged into Tri Polyta through a $1.2 billion share-swap, the two companies said in a statement published in Bisnis Indonesia on Monday.

Each share of Chandra Asri will be swapped with 42,660.5 new shares of Tri Polyta with completion of the transaction expected by January, the statement said.

Bank Central Asia, Indonesia’s biggest lender by market value, climbed 3.1 percent to Rp 6,700 amid speculation that next year’s inflation will remain benign, providing greater scope for the central bank to delay raising borrowing costs, said Muhamad Sugiarto, an analyst at Lautandhana Securindo.

The rupiah traded near a three-year high after foreign investors added to their holdings of the country’s assets, at 8,954 per dollar as of the stock market’s close

“The rupiah will follow the strengthening Asian currencies on capital inflows,” said Aris Setiawan, a foreign-exchange trader at Bank Chinatrust Indonesia in Jakarta.

“The central bank has been active in the market, buying dollars this morning. The currency has room to strengthen, but Bank Indonesia wants to keep exports competitive.”

Bustling Indonesia Jumps 10 Places In World Competitiveness Ranking

Dion Bisara & Eny Wulandari | September 12, 2010
Jakarta. Indonesia has been ranked 44 out of 139 countries in the World Economic Forum’s 2010-11 Global Competitiveness Index, a jump of 10 spots over last year’s position.

The boost reflects expanding business opportunities and speedy economic growth.

Edy Putra Irawady, deputy to the coordinating minister for the economy, said “improvements in public service and education” had also helped.

The GCI report singled out inefficient bureaucracy and corruption as major obstacles to doing business in Indonesia but “appreciated significant improvements we made in those fields,” Edy said.

The report also came down hard on Indonesian infrastructure, ranking it 82nd. Indonesia was at 84th for road infrastructure and 97th for power supply.

“Infrastructure is still a problem. Vietnam jumped faster than us because of improvements in infrastructure,” Edy noted. Vietnam came in at 59 on the overall list, at 14-spot gain over last year.

Coordinating Minister for Economic Affairs Hatta Rajasa said the government was not satisfied with the latest ranking.

“What makes our competitiveness a little behind is our infrastructure,” he said. “Therefore, we are well aware we must fight to improve it.”

With limited budget resources, Indonesia would have a tough time fixing the problem, Hatta said, while stressing the importance of public-private partnerships.

He also cited the difficulty of freeing land for infrastructure as another factor stunting the country’s growth. To address the problem, he said the draft Land Acquisition Act would be submitted to the House of Representatives next month.

Trade Minister Mari Elka Pangestu agreed infrastructure was a big problem, but added that health issues also needed to be addressed.

She pointed to tuberculosis, malaria and infant mortality as issues demanding attention.

But Mari cited improvements in the business climate and the bureaucracy as reasons for the jump in the ratings.

Even with all the infrastructure shortcomings, Edy said the improved ranking would make Indonesia more attractive to investors.

Rahmat Waluyanto, director general of debt management at the Finance Ministry, said it meant the nation’s credit rating would likely rise as well, as the measurements tended to consider the same indicators.

Switzerland topped the overall ranking. The United States fell two places to fourth, overtaken by Sweden (second) and Singapore (third).

http://www.thejakartaglobe.com/business/bustling-indonesia-jumps-10-places-in-world-competitiveness-ranking/395729

Jakarta Composite Index Hits Fresh Record Before Traders Pack Up for Idul Fitri

September 07, 2010
The Jakarta Composite Index rose to a record close on Tuesday, the last day of trading before the Idul Fitri holiday. (Antara Photo) The Jakarta Composite Index rose to a record close on Tuesday, the last day of trading before the Idul Fitri holiday. (Antara Photo)

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Jakarta. The Jakarta Composite Index rose to a record close on Tuesday, the last day of trading before the Idul Fitri holiday, while other Asian markets ended mixed.

The JCI advanced 13.74 points, or 0.4 percent, to 3,230.89, marking a third-straight day of record results. Some 5.2 billion shares worth Rp 3.7 trillion ($411 million) changed hands.

Gainers outnumbered decliners 111 to 74. Foreign investors poured $166 million into the market in the shortened week at the end of Ramadan.

The market will be closed today for the Idul Fitri holiday, reopening on Sept. 15.

The Jakarta bourse, Asia’s second-best performer this year, has racked up inflows of $1.62 billion this year, already topping $936 million in full-year 2009.

Among the biggest gainers, auto-distributor Astra International, rose 2.1 percent, and Bank Danamon Indonesia jumped 4.7 percent.

Media Nusantara Citra surged 24 percent to Rp 390, its biggest increase since June 2009. The TV broadcaster’s shares had lagged the JCI but caught up amid a rally in media stocks, said Arief Budiman, an analyst at Phillip Securities Indonesia.

Perusahaan Perkebunan London Sumatra Indonesia, the second-largest listed plantation firm by market value, gained 1.6 percent as palm oil futures rose 1.8 percent in Kuala Lumpur on Monday.

United Tractors, the top heavy equipment seller, rose 1.3 percent after it was upgraded to “hold” from “sell” by Sucorinvest Central Gani, citing a lower country-risk premium for Indonesia.

The rupiah fell 0.3 percent to 9,018 per dollar in Jakarta, its first fall in three days, on speculation the central bank would intervene to curb volatility in the currency before the holidays.

The currency retreated from a two-week high after Bank Indonesia Governor Darmin Nasution said he wanted to avoid raising rates and as a slide in the euro bolstered demand for dollars.

“The central bank wants to maintain low volatility before the holidays,” said Aris Setiawan, of Bank Chinatrust Indonesia. “There were concerns about the euro declining.”

The currency has risen 4.1 percent this year, the third-best performer among Asia’s most-traded currencies excluding the yen.

The central bank held its benchmark interest rate at a record-low 6.5 percent on Friday to support growth. President Susilo Bambang Yudhoyono targets an average 6.6 percent annual economic growth through the end of his term in 2014.


Bloomberg, AFP, Reuters