Sunday, November 26, 2006

Indonesia in 2007

12 months ago I chaired a seminar discussing economic outlook for 2006 with several respected talking heads. The conclusion was Indonesia would grow faster in third quarter 2006 as the full impact of fuel price hike in October 2005 faded out after six months or so. Unfortunately, as shown by Central Burea of Statistic (BPS), the economic growth in Q3 has been the weakest at 5.5% only.

Part of the problems is low absorption of 2006 state budget in which spending for capital and goods for in Jan-Oct well below 50%.
The Central Bank's interest rate actually matched the prediction in Q3, but that's not the case with lending rates which remains too high to boost the economy. NPL, especially in state-owned banks, is high still.
Stock market is bullish though, and increasingly attractive for debt issuance. Foreign direct investment has been insignificant. Infrastructure projects are in slow-motion. Manufacturing industry's competitiveness dropped significantly. But export grew impressively? Well, thanks to huge increase in commodity price. Domestic consumption slowed down. Automotive is the worst.
Last week, I attended the same seminar discussing outlook for 2007. The speakers, Miranda Gultom (Deputy Governor of Central Bank), Sri Mulyani Indrawati (Minister of Finance, represented by economist Chatib Basri who is currently special staff for Mulyani), Mari Elka Pangestu (minister of trade affairs). The conclusion, Indonesia in 2007 would be better off. That simple? What kind of Indonesia we have next year?
Political & Security: Stable! (Important political event will be Jakarta gubernatorial election)
Fiscal Sustainability: Cautiously optimistic! (take into account the shortage in tax collection in 2006, slow progress of privatization of SOEs through stock market, slow absorption of budget)
Monetary: Stable! (Low inflation, Central Bank's target for key inflation is 7%). Central Bank's focus will be encouraging banks to improve the intermediation role. But how?
FDI: Remains low! Some wait the deliberation of Investment Law (in the discussion with parliament). Government promised to pass the law before the end of 2006. The new law is expected to give more protections to foreign direct investment and create level playing field for domestic and foreign investment which are currently regulated with different laws.
Energy: Volatile! (in supply & price)
Job market: Slow growth!
Consumer spending: Rebound, slow growth! (the planned increase in civil servants salary, minimum wage hike. Car market is expected to grow from 310,000 unit to 370,000 unit next year, still far below 2005 level at 520,000 unit. Motorycle sales dropped 18% this year and would grow 10% next year, but still below 2005 level. But consumption would still the country's strength supported by what economist Chatib Basri called Indonesia's hidden economy.)
Banking: More consolidation (merger/acquisition), lower NPL, lower interest rates, higher lending! In 2006, despite lower interest rate, lending has been hampered with low absorption. BCA, for example, signed Rp10 trillion new loans in 2006 but only Rp4 trillion that had been absorbed in 10 months (till October). Only plantations and mining performed well.
Property market: Oversupply, falling price! (Property market dropped 10%-20% in 2006 due to lower purchasing power & high lending rates. Lower lending rates could improve the market, but oversupply lingers)
Manufacturing: Stagnant! No significant investment! Main driver would be expansion projects of existing investors.
Infrastructure: Remains slow! Land acquisition & financing issues are still major problems.

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Anonymous WongLondo said...

Yosef, may I ask on what you base your expectation that property prices will fall? I am thinking of buying a house now, especially since purchasing power is expected to increase and lending rates are moving downwards, but I am not aware of an oversupply.. Which segments are we talking about?

November 26, 2006 12:00 PM  
Blogger yosef ardi said...

I think landed house will be OK.

November 26, 2006 5:19 PM  

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