Questions and Doubts Raise on Indonesia’s Crisis Protocols

September 27, 2011 by

European and the U.S.A crisis start to affect Indonesian economy. At the early stage, the effects take form in instability of exchange rate. This can be worsening as instability of exchange rate will influence international trade volume and foreign reserves. Meanwhile Indonesia doesn’t have that much foreign reserve to support its currency as China.

In short terms this may not sounds too urgent; at least for the first 6 months. However, if crisis last more than 6 months Indonesia may not be that persistent. As per current condition, it has USD 122 billion as foreign reserves, decreased by USD 2.6 billion used for market intervention to stabilize Rupiah’s rate and debt payout. The decrease is quite significant and government should start to worry and anticipate further decline as the crisis worsen day by day. However, until now government hasn’t yet announced any concrete steps to “welcome” the coming storm. As a matter of fact, Indonesia doesn’t even have so called emergency fund in case of crisis happened.

Actually each sector has its own crisis mechanism real, financial, private and public. However, they haven’t been synergized yet. It is government’s responsibility to synergize and integrate them. Government and the central bank, Bank Indonesia, should cooperate closely in order to keep the economy save. “At this point of time we still have no system that is well integrated as a protocol to overcome the crisis,” said Perry Warjiyo, the Central Bank Director of Research and Monetary Policy. Meanwhile, Harianto Solichin, the Director of Nikko Securities stated that foreign direct investment (FDI) would be much favorable at this state. Harianto then develops his statement by mentioning that there are several foreign companies which are willing to invest in Indonesia such as Toyota Motor with an investment of 3.31 trillions, P&G with 1 trillion, Nestle with 2 trillion and Unilever with 3.6 trillions Rupiahs, all by the year 2012. Government should carefully exploit this momentum to strengthen Indonesian economy as anticipation toward global crisis.

Tags: Global crisis, Indonesia, Investment

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Indonesia Government’s Aim on National Salt Self Sufficiency Meets Its Obstacle

September 26, 2011 by

Government’s goal to independently suffice national salt need meet an obstacle. This month should be harvest season for salt farmers in Madura however according to the report salt price is anticipated to plummet due to the coming of imported salt from India. Investigation by the Minister of Oceanic and Fisheries shows that one of salt importer, PT Budiono Madura Bangun Persada breaches the rules for importing salt. Investigation result shows that salt imported, as much as 21.042 MT, by this company is for consumption purposes instead of industrial; as agreed upon with the government. The huge amount of imported salt can threaten domestic price level which then will cause loss to local farmers.

According to government regulation stated in Regulation on Salt Import by Ministry of Trade and Commerce No. 44/MDAG/PER/10/2007 article 3 verse no. 2: salt for consumption purposes (iodized salt) is heavily restricted to be imported 1 month before the harvest season until 2 months after the season. Or, stated otherwise, from July to December 2011

Currently there are 11 big companies importing salt to Indonesia from various Asian countries. Those are PT. Sumatraco Langgeng Makmur, PT. Sumatraco Langgeng Abadi, PT. Garindo Sejahtera Abadi, PT.Pagarin Anugerah Sejahtera, PT. Garam, PT. Elitstar Prima Jaya, PT. Budiono Madura Bangun Persada, PT. Susanti Megah, PT. Mitratani Dua Tujuh, PT. Otsuka Indonesia and PT. Pabrik Kertas Tjiwi Kimia. It is recorded 1.07 million tons of salt is imported, coming to Indonesia from 2 ports, Tanjung Perak and Kalianget.

Government of Indonesia plans to independently suffice national needs of salt through its program so called National Salt Self-Sufficiency Program. This program aimed to be implemented by 2014.

For a start, government will decrease salt import consecutively from 2.187 million in 2010 to 1.022 million tons by 2011. This reduction is done as an effort to achieve self supporting target by 2014. Salt that has been imported to Indonesia until the year 2009 mainly come from Australia (1.39 mio tons), followed by India (257.9 thousand tons), China (51 thousand tons), New Zealand (1.118 ton) and others (35.759 thousand tons) (Source: National News Bureau, Antara). Moreover, government has chosen 40 cities to be the central production of salt in Madura with a total land area of 19,822 acres. Salt produced from these cities is targeted to reach 1.561 million tons, 687.238 thousand tons. Until early September 2011, production has reached 308.355 thousand tons and 133.457 thousand of those have been absorbed by the market. Current stock is 174.898 thousand tons. It is predicted this year’s harvest will reach the target.

The strategies for this master plan are first to intensively support facilities needed by salt industry such as rehabilitation of salt dikes, warehouses/storage houses, windmills and improving the quality of additive substances used for salt. Secondly is to revitalize the facilities that are to carefully support the infrastructural development for this industry. Last but not least is to conduct continuous innovation on the varieties of additive substances. Government invests 90 billion rupiahs for this program. It puts high hope on this master plan of national salt self sufficiency as it will help the economy from supply side means Indonesia is one step closer to supply economy. This will hopefully strengthen its economic fundamental instead of just counting on consumption sector.

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Looking to 2012 and the Effect of Euro Crisis to Indonesia

September 25, 2011 by

Indonesia will be affected by the European crisis at the early 2012, signaled by declining exports toward those countries. This statement was given by the Chairman of the Agricultural Primary Industries Development Adhi S Lukman. “The European crisis to be quite frank has not yet affected Indonesia directly. Nevertheless, we have to stay alarmed because the effect is somehow can be silent yet deadly. What we can see is now exchange rate (of Rupiah against other currencies) is wobbling a little but in general it is still save,” so as he told.

European crisis is somehow more dangerous that the U.S. crisis. This is because the U.S.A is only one united country while Euro consists of numerous countries. The rumor is that if the crisis continues some countries choose to step out from the Euro. This will cause a great disturbance on the stability of the Europe as a whole. Trade activities will be affected thus Indonesian trade contracts with some of countries in Europe. Usually trade agreements last between 3 to 6 months thus if Euro becomes instable both economically and politically Indonesia will also be affected. Currently, Adhi stated that trade activities are only completing the remaining contracts; those will be renewed in early 2012. Adhi suspected that this heavy crisis attacking Euro will cause significant export decline. The biggest commodities exported from Indonesia to Europe are food and beverages with a value around 500 million USD.

The logical strategy is for Indonesia to look for alternative market outside Europe in order to stabilize its export volume. Maybe Indonesia should start to set eyes on its surroundings, Asian countries. Besides, there are several countries that Indonesia has had the FTA agreement and the upcoming is with India. Further than that, Indonesia should also start to develop its trade agreements and activities with Middle East to support its exports.

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Indonesian Rupiah is Heading for 9,000 per USD

September 21, 2011 by

Global economic crisis continue to infect Indonesian currency. Many foreign investors sell their rupiahs and buy other currencies such as Euro and U.S. dollars to cover their investment losses in Europe and the U.S.  Analysts see and partly hope that this condition is temporary. They predict that in no time investors will be able to recover their business losses and start to invest their money back to Indonesia in forms of buying Rupiahs and Indonesian stocks or obligations.

However, investors also wait and see on what The Fed will decide on the stimulus fund to support the U.S. economy which will eventually also help some part of the world’s economy. The meeting will be held from September 21st to 22nd this year and all is waiting for good news to encourage positive market sentiment. Like always, market is about perspective. If the Fed at least says yes to the third stimulus fund program, that will help the market to rebound and gain its momentum. Yet until now, there is no sign that the Fed will implement this aid. Thus, investors tend to release Indonesian Rupiahs and go buy dollar to elevate its value in the global market. This is actually in contrast of what the U.S. government aims with its currency. It wants the dollar to weaken a little bit in relation to the declining interest rates 2 years ahead. Supposedly, this policy is to stimulate economic activities in real economic sectors, domestically.

In addition to that, Europe economic crisis is still ongoing creating nervousness in the market. This is due to more delays from donor countries lending their money to Europe.

To avoid uncontrollable plummeting of Rupiahs, Indonesian Central Bank, the BI intervenes by releasing its foreign reserves as much as 2.6 billion U.S. Dollars. Without this intervention, Rupiahs will most probably plunge deep to IDR 9,000 per U.S. Dollar. The BI is optimistic about the situation despite the declining Rupiahs as long as Global crisis find its end soon.

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