Indonesia’s Throbbing Mineral Veins
Indonesian shares recovered traction early in January after last year’s worst Asia showing on more modest current account slippage at 3 percent of GDP, despite a Presidential ban on raw mineral exports until big operators like Freeport and Newmont ensure local processing capacity for additional value and jobs. The initial language was diluted so that nickel and bauxite shipments accounting for $2 billion in revenue would be the only commodities immediately affected. Dozens of firms laid off workers in anticipation of the moratorium, as China in particular moved to source supply from neighbors. Heavyweight listing Antam with a large foreign investor base was slammed, following bank selloffs on credit slowdown and the rupiah’s 25 percent plunge against the dollar. The central bank paused after almost 200 basis points in rate hikes, and fiscal policy should also be tight throughout the election period as fuel subsidies are pared modestly and net borrowing is covered by relatively unchanged 30 percent overseas holdings of domestic debt. Economic growth should reach 5 percent with stable oil import costs and smooth leadership transition, with the current Jakarta governor favored in opinion polls although not a declared candidate. The region’s other headline trouble spot India likewise got initial 2014 relief as retail inflation faded to single digits on lower food prices and non-residents returned to the bond market as the trade balance reflected gold demand barriers. Politics there too is on the boil as Rahul Gandhi was officially tapped to head the Congress Party list against current opposition front-runner Modi, and the new spoiler “Common Man” movement took power in the capital. About 125 previously stalled infrastructure projects worth $65 billion have been cleared by a government task force, as Mumbai opened a modern international airline terminal. Central bank chief Rajan has stressed a deleveraging theme with the main industrial conglomerates running up over $100 billion in debt which may aggravate the true bank NPL reading already at one-tenth of the total. On the Sensex consumer goods plays have come under pressure with GDP growth halved to 4.5 percent and rule shifts in the drug and retail sectors.
Korea on the other hand dipped after 2013’s flat performance on tough currency intervention talk against the yen in particular after Samsung reported earnings erosion from the 15 percent higher won. Moody’s gave a stable mark to the banking system as developed world recovery should sustain 4 percent GDP expansion, according to official and private forecasts. On the frontier front Vietnam has made up last year’s small loss as the central asset company offers 5-year liquidity to compensate for credit pullback and real estate softness. Inflation is in single digits and the current account has moved to surplus, with foreign reserves estimated at $30 billion for the minimum 3 months’ import needs. Planned currency depreciation will again be 2-3 percent with a dollar influx foreseen from mining Trans-Pacific free trade pact fodder.
