Indonesia’s Perfunctory Presidential Preening
Indonesian stocks tried to hold on to Asia best 20 percent MSCI gains with India’s post-Modi momentum as its own presidential race turned serious with running mate and allied party selection. Jakarta governor Jokowi tapped former Vice President Kalla to the ticket for age and experience balance while his main army general opponent announced a coalition with Golkar, the post-Suharto apparatus with the deepest field organization in the archipelago. Economic growth in Q1 was below consensus at 4 percent, but the trade surplus has returned on inflation bottoming at 7 percent. The rupiah has remained in the 11,500/dollar zone on unchanged 30 percent foreign commitment to local bonds following the central bank’s interest rate hikes and retreat from market manipulation. However commodity exports have been hammered by the mineral export halt pending greater domestic value-added, a move criticized by the World Bank for damaging revenue and investor confidence as it pointed to erratic anti-poverty progress taking into account the huge informal sector. Bank loan-to-deposit ratios in turn have fallen to 80 percent with credit caution dampening internal demand as savings are withdrawn and relocated in the political transition phase. In fiscal policy the issue of future subsidy cuts has been dodged in the campaign as the outgoing government has shifted to raising luxury good taxes to maintain balance. International companies anticipate another infrastructure modernization effort under SBY’s successor and modification of the ore sales ban, with the Japanese poised for a combined $4 billion manufacturing-services push as their FDI flows to ASEAN represent one-third the total. The mega-banks have stressed cross-border operations with flat loan demand at home and asset redeployment needs in light of the central bank’s massive JGB purchase program. The monetary easing pillar of “Abenomics” has been steady with additional stimulus provided by consumer spending before a recent tax rise. The other elements will be revisited in mid-June a year after introduction including corporate tax, immigration, pension fund and free trade reforms. The Government Pension Plan is expected to expand emerging market debt allocation reflecting parallel retail investor interest especially in Latin American and European offerings. A breakthrough was attempted on the Trans-Pacific Partnership negotiations during President Obama’s Tokyo visit and could still materialize to enable a treaty draft to reach parliaments by September, according to observers who note that the US Congress could still delay ratification without the Executive’s cudgel of one-time vote promotion authority.
The Indonesian result will be challenged to be as decisive as India’s where prime minister Modi was sworn in with a compelling BJP majority in the lower house as the long-dominant Congress Party led by the Gandhis suffered historic defeat. Equity market capitalization is $1.5 billion on torrid foreign inflows despite P/E ratios over 15, and even into battered banks with admitted bad loans at one-tenth of portfolios on the slowest federal growth in decades defying Gujarat-type rebirth.
