Indonesia’s Bank Shadow Play Shapes
Poor-performing Indonesian stocks were further battered after authorities announced new limits on foreign bank ownership in the middle of a high-profile transaction following the recent introduction of mining curbs. Both moves solidified the lone rating agency refusal to grant sovereign investment grade status on “policy slippage.” and came as GDP growth projections were cut to the 6 percent range and the rupiah crashed the 9500 barrier on a combination of trade deficit and international portfolio exit. Singapore’s DBS had proposed the $7.5 billion takeover of Bank Danamon but according to the new rules its stake would typically be confined to 40 percent although a 99 percent ceiling can apply on demonstration of “economic development benefits.” The central bank claims the change will not affect existing shareholding but the scope for interpretation and regulatory delay may indefinitely suspend financial sector deals just as mineral ones ground to a halt on access and labor restrictions. To bolster the currency officials mobilized special dollar facilities as $110 billion in reserves cover less than two months’ imports. The move will again put the balance sheet at risk after previous large bond buying operations which gave commercial players pause. Commodity price easing has hurt exports but helped inflation as the benchmark interest rate stayed just under 6 percent with oil subsidy policy intact. President Yudhoyono is entering the twilight of his second term with corruption marks still abysmal at 100th on Transparency International’s “clean” ranking and jockeying for succession underway. Lawmakers have denied anti-graft commission funding and members have appealed directly to interested citizens for cash to obtain new premises. The President has also raised eyebrows within Asean for a go-slow approach on integration as the 2015 free-trade zone deadline nears. He has characterized the effort as comparable to the EU where rich-poor divides argue against “imitating the structure.”
Elsewhere in East Asia Korea was again excluded from developed market graduation on continued short-selling and derivative constraints as a $2 billion oil refiner listing was scuttled on lackluster conditions and controversy surrounding the unit’s receipt of Iranian shipments in defiance of global sanctions. The government subsequently announced a total boycott in response to investor and diplomatic outcry and the offering’s withdrawal reflects a common regional pattern which has cramped Hong Kong in particular as Malaysia takes the surprise lead. GDP growth has dipped to 3 percent and a $7 billion public works stimulus was tabled both to deflect slowdown and ruling party criticism over a wiretapping scandal. The new president must also contend with savings bank failures which have resulted in executive suicides and the prospect of additional belligerence from the North. After a rocket lunch as the latest Kim took over severe drought arrived as peaceful unification hopes consistently turn arid.
