Indonesia’s Retrograde Red and White Blues

Indonesia tried to keep double digit share gains and one-third foreign ownership of local debt as President Jokowi took office after his opponent’s “red and white” coalition with legislative control moved to annul post-Suharto era electoral decentralization. The change would place appointment power with regional councils dominated by the parties, and outgoing President Yudhoyono proclaimed his “disappointment” with the bill which must be voted again to take effect as democracy activists launched protests. The new chief executive was relatively unperturbed by the move and vowed to appeal directly to the citizenry as he pointed out his minority political backing as mayor of Solo and Jakarta. His cabinet slate was also delayed by pending clearance from the anti-corruption body, but was presented to initial applause with technocrats in key economic posts. Other ministers came from his PDI-P party still dominated by former presidential contender Megawati. Lower oil prices have pared the fuel subsidy budget cost but the issue will be tackled as an immediate priority along with FDI treatment after the arrest of several mining company executives for alleged abuses. Jokowi will attend November summits in the region as questions hang over his lack of international experience. His hands-on style promises visible early administrative and infrastructure progress and more attention to the 40 percent poor population. The current account deficit remains stuck at 3 percent of GDP and relies disproportionately on portfolio inflows for coverage as the rupiah hovers around 12000/dollar. The central bank continues incrementally tighter money with credit growth down to 15 percent and a cap just imposed on premium deposit rates at large banks to divert liquidity to smaller competitors. The loan-deposit ratio is close to 100 percent but with growth slowing to 5 percent consumer and company bad assets are expected to rise.

That measure at 110 percent has started to raise financial stability concerns in Thailand despite the stock market’s 15 percent MSCI increase as the central bank is likely to stay on hold with tame global food and energy prices. Households borrowing heavily under populist schemes before the military takeover may be overextended and corporate bond issuance has spiked to 20 percent of GDP with low rates amid flat internal and external sales under the junta’s erratic policy direction. While infrastructure spending has been partially unblocked interim officials have suggested new wealth and property taxes although the army’s own business portfolio may be shielded. Corruption charges have surrounded government members after suspect asset declarations as the murder of British tourists at an island resort also raised negative attention. Malaysia has embarked on fiscal and monetary tightening as shares are off slightly through October. Gas and diesel costs were hiked and a VAT will be operational next year. The benchmark rate and bank lending standards were tweaked as gentle budget and credit landings are envisioned after the doomed airliner equivalents.