Fundamentals Sound, JCI Downturn to Be Short-Lived, Observers Predict

Financial leaders, economists and analysts said they were confident the hammering the Indonesian stock market took last week would be short-lived and that the Jakarta Composite Index was unlikely to take as savage a battering as it did at the beginning of the global financial crisis.

The JCI fell by 7.8 percent last week, the biggest slump since the week ended Nov. 21, 2008, but still nowhere near the 20 percent it fell on Oct. 6 and 7, 2008, at the start of the crisis.

Markets worldwide fell significantly last week because of investor nervousness about the Greek debt crisis, while the situation was made worse in Indonesia by the shock resignation of Finance Minister Sri Mulyani Indrawati on Wednesday.

The rupiah also dropped by 1.02 percent last week, trading at Rp 9,215 against the US dollar at 4 p.m. on Friday, as investors turned to the dollar, regarded as a safe haven in troubled times.

Darmin Nasution, Bank Indonesia senior deputy governor, said a double-dip global recession was unlikely as the US economy was in better shape now and Europe was also improving.

“This is a global phenomenon, apparently caused by uncertainty about proposed solutions to the [Greek debt] crisis,” he said.

He said it was exacerbated by Wall Street’s dramatic plunge on Thursday when the Dow Jones Industrial Average dropped nearly 1,000 points in a matter of minutes.

Fuad Rachmany, chairman of the Capital Market and Financial Institutions Supervisory Agency (Bapepam-LK), said he didn’t expect a repeat of October 2008. “Recovery processes are hilly,” he said.

Farial Anwar, a director at Currency Management Group, said he didn’t think the Greek debt crisis would have as big an impact on international markets as the subprime mortgage crisis in the United States, dismissing “a big domino effect.”

The downward pressure on the rupiah is likely to ease, Farial said, adding that he expected the central bank to intervene to keep the currency trading between Rp 9,100 and Rp 9,300 against the dollar this week.

Edwin J Sebayang, head of research at PT Bhakti Securities, said the stable rupiah, positive first-quarter earnings reports and the cooling down of negative sentiments over Sri Mulyani’s departure should all combine to stop the JCI falling much more this week.

“On Monday, the index may still weaken,” Edwin said.

However, he said he expected lower prices and the continuing strong fundamentals of the Indonesian economy to result in buyers getting back into the market.

Fauzi Ichsan, an economist at Standard Chartered Bank Indonesia, said the country’s strong fundamentals, backed by foreign-currency reserves of about $78 billion compared with $50 billion in the second half of 2008, would help the economy weather the current turbulence. But he warned the government not to be complacent.

“The government should appoint a new finance minister to calm down the market, and it should actively coordinate with the International Monetary Fund and the Group of 20 leading nations on how to respond to the Greek issue,” he said.