Consumer Confidence Lower Over Jobs, Growth

Shoppers crowd Jakarta's Blok M Mall during last year's Ramadan. (JG Photo/Afriadi Hikmal)

Jakarta. Consumer confidence has declined in June amid concern over the availability of jobs and an expected slowdown in Indonesia’s economy in the next six months, according to a Danareksa Research Institute survey.

The consumer confidence index may decline 0.3 percent to 94.8 points in June, Danareksa said in a press statement on Wednesday.

An index reading of below 100 points represents pessimism, while a reading of over 100 points paints a picture of greater optimism.

The government’s official consumer confidence report, compiled by the central bank, is scheduled to be released today.

Anxiety over the unavailability of jobs and reports of fertilizer shortages in some parts of the country were primarily blamed for the slight drop in confidence, Danareksa said.

The report also found that on average, Indonesians feel less optimistic about the country’s economic prospects for the rest of the year, which, in turn, led to a decline in their desire to buy durable goods such as cars and household goods.

In the Danareksa study, which involved 1,700 households across the archipelago, 28.8 percent of respondents indicated that they planned to spend money on durable goods in the next six months.

This represents a 5 percentage point gap compared with 33.5 percent in May and 34.2 percent in June last year.

The central bank forecasts Indonesia’s $900 billion economy to grow at between 5.2 percent and 5.5 percent this year, down from an initial prediction at the beginning of the year of a growth rate of between 5.9 percent and 6.2 percent.

Indonesia’s rate of inflation eased to 6.7 percent in June from 7.3 percent in May, the Central Statistics Agency (BPS) said on Tuesday.

On the bright side, consumer confidence in the government’s ability to control prices grew 2.5 percent to 83.9 in June, continuing an upward trend since May.

By Vanesha Manuturi on 08:35 pm Jul 02, 2014

Indonesia’s Inflation Slows, While Trade Swings to Surplus

A vendor waits for customers at a street market in Jakarta. The Central Statistics Agency says on Tuesday (7/1) the consumer price index eased to 6.7 percent last month, the lowest since June last year. (Reuters/Enny Nuraheni)

Jakarta. Indonesia’s trade balance has swung to a surplus in May, while inflation slowed in June, bolstering Bank Indonesia’s case for keeping its benchmark interest rate steady next week.

The country recorded a trade surplus of $69.9 million in May, following a record deficit of $1.97 billion in April, as exports picked up and imports slowed, the Central Statistics Agency (BPS) announced on Tuesday.

The consumer price index also eased to 6.7 percent last month from 7.3 percent in May, the BPS reported on Tuesday. Last month’s inflation rate was the lowest since June 2013, when it stood at 5.9 percent.

“In all, although the data was somewhat weaker than expected from a growth perspective, it was positive from a vulnerability perspective and suggests that Indonesia’s current-account adjustment, though lagging southern peer India, remains on track,” Wai Ho Leong and Bill Diviney, Singapore-based economists at Barclays, said in a report on Tuesday.

The Barclays economists noted that both exports and imports in May were weaker than expected, with exports falling 8.1 percent year-on-year to $14.83 billion and imports contracting 11.4 percent to $14.76 billion.

There was a $1.4 billion trade surplus in the non-oil-and-gas sector, thanks to resurgent of palm oil exports and decline in machinery imports.

For oil and gas there was a deficit of $1.33 billion.

Gundy Cahyadi, an economist at DBS Bank, said the country’s exports are still contracting, which should force the central bank to keep monetary policy tight to reign in imports further.

“Keeping the trade balance — and thus, the current-account balance — in check remains a key priority for now. [Bank Indonesia] is likely to maintain its tight monetary policy for a while longer,” Gundy said, adding that he expected the central bank to maintain its benchmark rate at 7.5 percent for the rest of the year.

That despite inflation having started its declining trend toward the end of this year, as the impact from last year’s subsidized fuel price increase dissipates.

By Tito Summa Siahaan on 08:08 pm Jul 01, 2014

First of Three Electricity Price Increases Takes Effect

Jakarta. The first of a series of planned increases in Indonesia’s electricity tariff took effect on Tuesday, with the government emphasizing that raising the prices in phases would be more manageable for consumers than an immediate sharp rise.

“We are increasing the tariff gradually to prevent any surprise,” Minister of Energy and Mineral Resources Jero Wacik said on Tuesday.

The increase for consumers in the 1,300-volt category will be 11.36 percent, Jero said. Two further price increases will follow in September and November.

“It’s not too big — the increase is only around Rp 20,000 [$1.90],” Jero said. “The price increase is equal to sending a few text messages or [buying] some cigarettes.”

The government said that the new tariff would cut as much as Rp 8.51 trillion a year from Indonesia’s electricity subsidy.

By Rangga Prakoso on 07:14 pm Jul 01, 2014

Indonesia Needs Near 9% Growth to Avoid Middle-Income Trap: World Bank

A farmer clears weeds at a rice field in Cianjur, West Java province on June 12, 2014. The World Bank says in a report released on June 23 that Indonesia must improve its competitiveness by closing infrastructure and skills gaps and by improving functioning of markets. (Reuters Photo/Beawiharta)

Unless the economy grows much faster than the current 5 percent to 6 percent, Indonesia will not escape the so-called middle income trap, the World Bank says in a statement announcing release of its Indonesia development policy report on Monday in Jakarta.

Indonesia must improve its competitiveness by closing infrastructure and skills gaps and by improving functioning of markets, Rodrigo Chaves, World Bank country director for Indonesia, says in a statement.

These actions would have knock-on effects on raising productivity and incomes, and would require better government  spending that cuts inefficiencies such as fuel subsidies, Chaves says.

Bloomberg

Indonesian 10-Year Yield Rises to Highest Since March on Deficit

Indonesian bond yields are at their highest in three months. (JG Photo/ Dhana Kencana)

Indonesia’s bonds fell, pushing the 10-year yield to a three-month high, on speculation the prospect of increased government debt sales will prompt investors to seek higher returns on existing notes.

Sovereign borrowings are set to rise after the nation raised its budget-deficit target for the year. Lawmakers approved a revised fiscal shortfall of 2.4 percent of gross domestic product, compared with 1.69 percent previously, Ahmadi Noor Supit, chairman of the parliament’s budget commission, said on June 18. The Finance Ministry plans to auction Rp 8 trillion ($668 million) of securities on Tuesday, after an Islamic bond offering last week fell short of its goal as the government rejected bids for higher yields.

The yield on the nation’s 8.375 percent bonds due March 2024 rose three basis points, or 0.03 percentage point, to 8.16 percent as of 11 a.m. in Jakarta, according to the Inter Dealer Market Association. That’s the highest since March 26. The rupiah rose 0.1 percent to 11,965 per dollar, prices from local banks show. It lost 2.4 percent this month, the most among 24 emerging-market currencies tracked by Bloomberg.

“The higher financing need gives investors more sway to ask for better yields, while failed sukuk sales are a concern as they would add to the supply of conventional bonds,” said Dini Agmivia

Anggraeni, a fixed-income analyst at Maybank Kim Eng Securities in Jakarta. “Rupiah weakness is also a concern.”

In the offshore market, one-month non-deliverable rupiah forwards were little changed at 11,985 per dollar, 0.2 percent weaker than the onshore rate, data compiled by Bloomberg show.

One-month implied volatility, a measure of expected swings in the exchange rate used to price options, climbed two basis points to 10.02 percent. Bank Indonesia set a fixing used to settle the rupiah forwards at 11,971 per dollar, compared with 11,967 on June 20.

Bloomberg

Prabowo, If Elected, Would Pursue Plan to Cut Fuel Subsidy by Half in 3 Years

Indonesian presidential candidate Prabowo Subianto greets supporters while campaigning in Makassar, South Sulawesi province on June 17, 2014. He said is a session on June 20 that he would significantly reduce the cost on fuel subsidy if he were elected president. (Reuters Photo/Yusuf Ahmad)

[Updated at 9:12 p.m. on Friday, June 20, 2014]

Jakarta. Presidential candidate Prabowo Subianto said on Friday night that, if elected, his administration will cut the cost of fuel subsidy by around a half or two thirds within the space of three years.

In a special session devoted to the Indonesian Chamber of Commerce and Industry (Kadin), the country’s most powerful business lobby group, Prabowo said that his administration’s priority would be replacing the current universal subsidy policy to a more targeted subsidy.

“Our objective is to reduce the subsidy by a half or two thirds within three years,” said Prabowo. “And in the next four to five years, our goal is to keep the subsidy cost at minimum.”

The government a year ago raised subsidized fuel prices by an average 33 percent in a bid to rein in costs. Indonesia is set to spend Rp 350 trillion ($29 billion) in fuel subsidy this year, according to the revised state budget approved by the House of Representatives earlier this week.

Prabowo, a former general, is facing Jakarta Governor Joko Widodo in the July 9 presidential election.

In response to the high-profile issue related to the operation of Freeport Indonesia, he said that his administration will handle it rationally.

“We will handle the issue rationally, by putting forward national interest,” Prabowo said.  “If we evaluate, and it’s very possible, that they can get the contract extension, then why not? As long as we can keep our national interest.”

Freeport Indonesia, which operates the world’s largest gold mine and the third-largest copper mine — in impoverished Papua — had sought for an extension to its contract that will end in 2021.

 By Tito Summa Siahaan on 09:02 pm Jun 20, 2014

Joko, If Elected, Would Build 100 Fish Centers, Set Up Maritime Bank

Indonesian presidential candidate Joko Widodo speaks to supporters at Pagaden village, in Subang, West Java on June 17, 2014. Joko said in a session on June 20 that he would set up a maritime bank that could help farmers with financing. (Reuters Photo/Beawiharta)

[Updated at 9:55 p.m. on Friday, June 20, 2014]

Jakarta. Presidential candidate Joko Widodo promises to build 100 fishery centers across the archipelago and set up a maritime bank in order to boost the country fish sector.

“If elected we commit to build a hundred fishery centers, which all will be equipped with cold storage,” said Jokowi, as he popularly known, in a special session devoted to the Indonesian Chamber of Commerce and Industry (Kadin), the country’s most powerful business lobby group,  on Friday.

Jokowi also asked that businessmen work with fisherman in developing the fisheries industry.

Jokowi’s also wants to make a maritime bank, especially to provide finance for fisherman.

“Fisherman only need Rp 400,000 to Rp 1,500,000 [$33 to $125] each time they go to sea. But sometimes it’s hard for them to come up with the money,” he said.

Despite being an archipelago nation, surrounded by oceans and seas, the fishery sector only contributes less than 5 percent of Indonesia’s gross domestic product.

Joko, governor of Jakarta, is facing former general Prabowo Subianto in the July 9 presidential election.

In Friday’s session, Joko eluded a question on the future role of foreign direct investment in his administration.

A member of the audience representing Japanese business interests in Indonesia posed a question to Joko on his view on the role of foreign direct investment related to the increasing tendency toward protectionism in Indonesia.

Joko, instead, used his three-minutes to speak on the government’s main role in providing infrastructure, the main theme that both presidential candidates had promised to the public in their policies to boost the economy.

In last Sunday’s presidential debate on the economy and social welfare, Joko said that the domestic market should not be dominated by foreigners.

Jusuf Kalla, Joko’s vice presidential running-mate, said that, if elected, their administration would prioritize the construction of an oil refinery project within the first year.

“This is the first thing that we must sort out … in the first year,” said Kalla.

He blamed the “mafia” as the reason why the oil refinery project had failed to start in Indonesia.

“It’s actually easy, but the mafia makes it difficult. We have the money, the land and the needs [for refinery],” Kalla said.

Indonesia imports crude oil to refine into fuels such as gasoline and diesel to meet more than half of its total demand, and that has contributed to a trade deficit. Importers have a strong influence in Indonesia’s oil industry.

Joko also said that, if elected, he would task Indonesian ambassadors to focus more on economic, trade and investment issues.

“Our ambassadors must be productive. They must devote 80 percent to 90 percent of their time on trade diplomacy.”

“They must know the potential, the pricing and the people to call in the country [to which they’re assigned],” said Joko. “They must also negotiate, conduct transactions and make decision on prices.”

 By Tito Summa Siahaan on 09:30 pm Jun 20, 2014

Private Offshore Debt Up in April

Indonesia private sector keeps borrowing from overseas to finance their expansion amid deficit in the country's current account. (JG Photo/Safir Makki)

Jakarta. Private sector foreign debt kept accelerating in April, exposing Indonesia’s growing dependency on overseas financing as the country bought more goods and services abroad than it sold.

The external debt of private sector grew 13 percent to $145.6 billion two months ago, compared to the same month last year, data from Bank Indonesia showed on Tuesday.

The pace was higher than the 12 percent pace increase recorded a month earlier.

While public debt grew by 2.2 percen t to $131 billion, slowing from the 5.1 percent growth pace recorded in the preceding month.

That lifted the country’s total foreign debt to $276.6 billion in April this year, up 7.6 percent from the same period a year ago.

However, foreign debt growth was slower in April from 8.7 percent in March.

While noting the level of external debt “remained healthy in supporting external resilience,” Bank Indonesia is concerned about the level of private debts, the central bank said in the statement.

“Bank Indonesia will continue to monitor the growth of Indonesia’s external debt, especially private sector external debt, so as to optimally support development financing without jeopardizing macro-economic stability,” the bank said.

A surprise trade deficit of $1.96 billion in April stoked worries that the country’s current-account deficit was widening instead of narrowing.

Indonesia posted a $4.2 billion deficit, or 2 percent of its gross domestic product, in the current-account balance in the first quarter.

The current-account deficit means the country heavily relies on foreign loans to finance its imports of mainly fuel and machinery, which could result in severe problems should the financing stop.

The growth in private foreign debt in the manufacturing sector accelerated by 14 percent in April, compared with the previous month’s 8.5 percent.

The foreign loans in the mining and quarrying sector expanded by 15 percent, up from 12 percent.

But the financial sector —including banks, securities companies, multi-finance services and fund managers — grew at a pace of 12 percent compared to 14 percent pace a month earlier.

Long-term external debt stood at $229.7 billion in April, accounting for 83 percent of the total external debt.

Long-term public sector external debt reached $124.6 billion or 95 percent of the total public sector external debt, while the long-term private sector external debt amounted to $105.1 billion or 72 percent of total private external debt.

By Woodwing Importer on 08:20 pm Jun 17, 2014

Singapore May Home Sales Highest Since June 2013

Private homes being sold in Singapore was the highest in almost a year in May 2014. (Reuters Photo/Edgar Su)

Singapore. The number of private homes sold by developers in Singapore in May was the highest monthly figure in almost a year, government data showed on Monday.

Developers sold 1,470 units last month, a 0.8 percent rise compared to 1,459 units in May 2013, data compiled by the Urban Redevelopment Authority showed.

The level of sales was nearly double April’s figure of 749 and was the highest since June 2013 when 1,806 units were sold.

Singapore has taken steps to cool the housing market, and property prices have fallen for the past two quarters.

Reuters

By Reuters on 12:15 pm Jun 16, 2014

Dubai Faces Moment of Truth Over Looming Property Bubble

An advertisement for a property finding portal that reads, ‘Keep Calm There’s No Bubble’ is seen on a building in the Marina district of Dubai, in this November 19, 2013 file photograph. Surging supply and unsustainable demand are a risky mix — the same combination that got Dubai into trouble six years ago, forcing state firms to reschedule tens of billions of dollars of debt and jolting financial markets around the world. (Reuters Photo/Caren Firouz)

Dubai. “Keep calm. There’s no bubble”, proclaimed a giant poster on a 40-story building overlooking a Dubai highway, advertising a property finding portal late last year. That may have been true at the time, but the risks are rising.

A leap in bank lending to the construction industry indicates financial institutions have resumed pouring money into real estate projects in the last few months, after cutting back sharply in the wake of Dubai’s 2008 crash.

At the same time, property prices have been soaring on the back of Dubai’s economic boom, increasing the chance of the market rising to unsustainable levels.

Surging supply and unsustainable demand are a risky mix — the same combination that got Dubai into trouble six years ago, forcing state firms to reschedule tens of billions of dollars of debt and jolting financial markets around the world.

This time, authorities say they are aware of the dangers, and they have taken regulatory steps to slow demand growth. But the steps are still modest compared to those by other global cities facing the same problem, such as Hong Kong and Singapore.

“It’s too early to be calling top, but credit growth of that pace tells you that the cycle is accelerating rapidly,” said Simon Williams, HSBC’s chief economist for the region. “Such a huge increase in lending is simply not consistent with economic order and stable asset prices. The time for policy action is now, before bubbles really get going, not when they are already in place.”

Demand

Dubai house prices posted the fastest year-on-year rise of any of the world’s major markets in January-March for the fourth straight quarter, soaring 27.7 percent, consultants Knight Frank said. Rents rose about 30 percent on average in the same period.

The value of real estate deals in Dubai, with a population of 2.3 million, jumped 38 percent in the first quarter to some 61 billion dirhams ($16.6 billion), the Land Department said.

There are good reasons for property prices to rise, including annual economic growth around 5 percent and inflows of money from Arab investors seeking safety in a turbulent region.

While some prices have almost returned to their pre-crash peaks, they are well below some other global business cities. Prime real estate in Dubai costs between $6,200 and $7,500 per square meter, against $27,600 to 33,700 in Singapore, according to Knight Frank.

The volume of real estate deals has not reached its pre-crash peak but demand is showing signs of slowing. Propsquare Real Estate said sales volumes so far this year were down about 25 percent year-on-year as prices become less affordable.

“The gap between what the seller is asking for a property and what the buyer is willing to pay is huge at the moment,” said Parvees Gafur, Propsquare’s chief executive.

Yet the Land Department described the first-quarter surge in real estate deals as “impressive” and looked forward to more.

“We expect the next three quarters to be similarly active, especially as this period follows the launch of a number of stimulating economic projects in Dubai and the disclosure of some of the preparations for the city’s hosting of Expo 2020,” said the department’s Director General Sultan Butti Bin Merjen.

The government fueled the current property boom when it announced plans, in November 2012, for a huge development including the world’s largest shopping mall, over 100 hotels and a park almost a third larger than London’s Hyde Park.

Meanwhile, most of the more than 200 man-made islands off Dubai laid out in the shape of a world map that symbolized the 2008 property market crash remain empty after state-owned developer Nakheel’s near debt default in 2009.

Authorities have taken some steps against price speculation and “flipping”, in which investors buy and sell properties — many of them unbuilt — in quick succession. Late last year, Dubai doubled the fee charged on property deals to 4 percent, while the UAE central bank imposed caps on mortgage lending.

Some real estate developers have taken their own action; partly state-owned Emaar Properties allows resale only after about 40 percent of payment for a property has been made.

But these steps are minor compared, for example, to a 15 percent fee imposed on the quick resale of property by Hong Kong and a 30 percent fee introduced by Singapore. Last month, the International Monetary Fund warned that Dubai might need to consider such tools as well.

For now, it does not seem that the growth-hungry emirate has the will to act more aggressively. The history of the mortgage loan caps suggests it may not; the central bank watered down stricter curbs after complaints by commercial banks.

In a statement on June 9, the Land Department insisted that the property market was broadly healthy, and that rising prices were simply due to a strong economy.

In an annual stability report a week ago, the UAE central bank warned that the real estate market might be overheating. But it is unclear what further action it could take; with US interest rates still ultra-low, any rate hike in the UAE is unlikely given the UAE dirham’s peg to the US dollar.

Supply

The supply side of the equation looks equally uncertain. Plans for real estate projects worth well over $50 billion have been announced in Dubai over the past 18 months — but it is unclear how many will actually get built and how fast.

Major work is starting on some of them. After shrinking for 16 months in a row, construction loans in the UAE jumped 40.1 percent from a year earlier in December to 181 billion dirhams, the fastest rate since June 2009, latest central bank data show.

That far outpaced growth in total bank loans, which rose just 8.8 percent in December to 1.1 trillion dirhams. And the lending boom is probably just beginning.

“We foresee an acceleration of real estate lending as developers launch new projects, and more local and expatriate customers seek to enter the mortgage market,” credit rating agency Standard & Poor’s said in a report last month.

A Dubai banker, declining to be named under briefing rules, noted increased risk-taking in funding to developers by local banks: “Some banks are offering 100 percent financing deals to firms on a selective basis. That’s not very sustainable.”

A return to the full excesses of the pre-2008 boom still looks unlikely. The crash cleared some second-tier developers out of the market, and the companies that remain still bear the balance sheet scars of the last crash; this should encourage at least some of them to be more cautious.

There are signs that developers are paying more attention to their rivals’ plans and implementing projects only in stages, proceeding with each one after reevaluating the demand outlook.

“Supply is more coordinated” than it was in the past, said Fahd Iqbal, head of Middle East research at Credit Suisse.

Nevertheless, the risks may be substantial in the next few years. Any sudden loss of confidence by a large proportion of foreign investors, or sharp tightening in US monetary policy, could ignite a pull-back in the market, S&P said in its report.

“What happened in 2013 was unsustainable. It is a big question mark whether or not we are going to have a sustained leveling off or whether it is going to pick up again,” said Farouk Soussa, Citigroup’s chief economist for the region.

“In Dubai things change quickly. If they build … all these big projects … then I think we can start to get more concerned about another massive cycle in the property sector that might be unsustainable.”

Reuters

By Martin Dokoupil & Praveen Menon on 01:36 pm Jun 15, 2014

Committee Revises 2014 Budget Deficit to 2.4% of GDP

A woman uses her mobile phone while being stuck in heavy traffic near Tanah Abang market in Jakarta June 3, 2013. (Reuters Photo/Beawiharta)

Jakarta. Indonesia’s fiscal deficit target has been narrowed to 2.4 percent of gross domestic product (GDP) in a revision of the 2014 budget approved by a committee late on Friday, the finance minister said, from 2.51 percent proposed earlier.

The deficit figure is 42 percent higher than the 1.69 percent fiscal deficit targeted in the original 2014 budget for Southeast Asia’s largest economy.

The adjustments are needed to account for changes to Indonesia’s macroeconomic assumptions — specifically a slower growth forecast, lower crude oil output and weaker rupiah exchange rate that has faced pressure from a yawning trade deficit and current account.

The deficit has declined to 241.49 trillion rupiah ($20.48 billion) from a 251.72 trillion rupiah forecast, Finance Minister Chatib Basri said.

The latest figure is 38 percent higher than the deficit of 175.4 trillion rupiah set in the original 2014 budget.

“The decline primarily stems from a reduction of the total government bonds to 264 trillion [rupiah] from 274 trillion [Rupiah],” Basri told the House of Representatives, referring to government obligations in a draft revision.

“As a result the spending cuts by other ministries targeted at 100 trillion in the revised state budget have now been reduced to 43.025 trillion [rupiah] or a reduction in ministry spending of 56.97 trillion [rupiah].”

By law, the deficit must not exceed 3 percent. Parliament is expected to sign off on the revised budget soon.

Earlier, President Susilo Bambang Yudhoyono had decided to cut the budget by 100 trillion rupiah, Basri said.

Indonesia’s fuel subsidy spending has increased 17 percent to 246.49 trillion rupiah in the revised budget from 210.74 trillion rupiah in the original, Basri said.

The total electricity subsidy spending in the revised budget has increased 45 percent to 103.82 trillion rupiah from 71.36 trillion rupiah, he added.

“This increase is a result of a change in the exchange rate that has been pegged at 11,600 [per US dollar] and a decline in [targeted] crude oil production from 870,000 barrels per day [bpd] to 818,000 bpd,” Basri said.

The latest economic assumptions included in the revised 2014 budget forecast growth this year at 5.5 percent, budget committee chairman Ahmadi Supit told parliament, down from 6 percent in the original. Inflation is seen at 5.3 percent, below the 5.5 percent originally forecast.

The rupiah rate assumption of 11,600 per dollar “is still realistic,” central bank governor Agus Martowardojo told lawmakers. The original budget had pegged the rupiah at 10,500.

“What needs to be noted are the government’s efforts to control the current account deficit. If possible exports will be protected so they improve and imports can be tightened,” Martowardojo said.

“Exports are a challenge for the government remembering that there is still pressure on commodity prices. What’s more, mineral exports are still being hindered by the law on coal and minerals,” he said.

Crude oil prices are expected to remain at $105 per barrel, while gas output is seen at 1.224 million barrels of oil equivalent per day (boepd), down from 1.24 million boepd in the original budget.

Reuters 

By Adriana Nina Kusuma on 11:39 am Jun 15, 2014

BI Expects Surplus in May

The Tanjung Mas port in Semarang, Central Java, handles a significant volume of traded goods. (JG Photo/Ali Lutfi)

Jakarta. Indonesia expects to post a trade surplus in May on recovering exports, after an unexpected deficit in April, according to Bank Indonesia governor Agus Martowardojo.

The country’s trade balance took a harsh blow from its mineral ore ban in April and swung to a deficit of $1.95 billion — to much surprise of many economists — posting its biggest fall in five years.

“The trade deficit on April was quite significant and surprising, but it seem we can reach a surplus on May,” Agus said.

Despite a more positive sentiment for May, Agus noted that exports will still be prone to pressure throughout the second quarter of the year as the country’s main commodities — such as palm oil and coal — continues to dwindle.

“Coal export is lower because of lower demand, whereas palm oil is a seasonal commodity,” he said. “We haven’t seen much growth on mineral export so far.”

China, Indonesia’s biggest trading partner, reported a slowing growth in the first quarter, affecting demand for coal and oil.

Indonesia’s exports declined 5.92 percent to $15.2 billion in April, compared with March. The figure fell 3.16 percent compared with the same period last year.

The export decline was due to a 7.09 percent slowdown in non-oil and gas export to $11.6 billion and a 0.35 percent fall on oil and gas export to $2.6 billion.

The central bank governor added that despite positive signs in May, attempts to boost the country’s exports must continue.

“Especially, in diversifying where we’re exporting,” he added without giving more details on any prospective countries.

The Central Statistics Agency (BPS) will announce trade data on July 1.

BPS showed that Indonesia non-oil and gas exports to its minor trading partners — outside European Union, China, Japan, United States, India, Australia, South Korea, Taiwan, and Southeast Asian countries — rose 5.5 percent to $14.6 billion.

Throughout the January-April period this year, China remains Indonesia’s biggest trading partner, contributing $6.2 billion — or 12.9 percent — to the nation’s total exports.

China primarily imports coal and palm oil, as well as goods such as smart phones, clothes, and toys.

The United States followed at $5.2 billion — 10.84 percent —- and Japan came third with $4.74 billion, or 9.86 percent.

Indonesia’s economy grew 5.21 percent in the first three months this year.

The central bank maintained its policy rate at 7.5 percent for a seventh straight month on Thursday.

By Vanesha Manuturi on 09:48 pm Jun 13, 2014

Rupiah’s Depreciation Makes Jakarta Cheaper for Dollar-Earning Expats: Survey

Ppedestrians cross at a traffic junction in Singapore on June 22, 2013. Singapore was the most expensive place to live in Southeast Asia, followed by Bangkok and Jakarta, according to a survey. (AFP Photo/Roslan Rahman)

[Updated at 2:20 p.m. on Friday, June 13, 2014]

Jakarta. For dollar-earning expatriates in Indonesia, the rupiah’s decline has made the cost of living in Southeast Asia’s biggest country cheaper, according to a survey released by ECA International.

Jakarta was ranked the 180th most expensive city in the world for expatriates in 2014, compared to 128th last year, according to a report released on Tuesday by ECA, which provides services for people assigned for work around the world. Of the 440 cities in the survey, Caracas, Venezuela was ranked as the most expensive, as a result of annual inflation at around 80 percent.

The rupiah was among the weakest-performing currencies across Asia last year. The Indonesian currency lost 26 percent against the US dollar in 2013, amid concern about slowing economic growth and higher fuel prices, but has gained about 3 percent this year. At the same time, the weak rupiah has pushed down expenses for expatriates on many levels.

“Expatriates are paid in US dollars, and that is substantial for their income,” said Eric Sugandi, a Jakarta-based economist at Standard Chartered. “Depreciation of the currency has a large effect on expatriates.”

Still, among major Southeast Asian nations, Jakarta is the third most expensive city, followed by Vientiane, Kuala Lumpur, and Manila, according to the ECA survey. Singapore and Bangkok are the two costliest cities to live, while Surabaya was the cheapest in the region.

ECA uses what it terms a “basket of goods” for each city surveyed, taking into account the cost of 130 day-to-day items like food, clothing, electronic goods, drinking, and dining out. Combined with the local currency fluctuation, each city is ranked both globally and within its region.

The “basket of goods” for Jakarta rose by 8 percent in 2014, but paired with a significant drop in the rupiah against the dollar, the Indonesian capital has become more economical for expatriates.

Expatriates like Kyle Larson, a Canadian who lives in Jakarta and works in the construction industry, says he has felt the value of his income climb recently but significant expenses, such as for housing and education, remain.

“Housing is the biggest one without a doubt,” said Larson. “I haven’t seen landlords drop their prices. Most expect you to pay two or sometimes three years in advance, and that’s very hard without a company behind you.” Housing in the central business district of Jakarta can cost upward of $1,000 a month for a one bedroom apartment.

Those who come to live in Jakarta with a family have to balance a hefty tuition for their children. “That can run you anywhere from $25,000 to $30,000 per year, even more for senior children,” said Larson.

Singapore, a financial hub in Asia, has the highest cost of living for expatriates in Southeast Asia. The high cost pays off when it comes to quality of life, where Singapore is ranked well above all of its neighbors, according to a quality of living survey by Mercer, which provides human resources services.

The proximity to Singapore and low cost of living is what drives many expatriates to live in neighboring countries like Indonesia and Malaysia. In the battle for expatriates one of the key differences between Jakarta and Kuala Lumpur is public transportation. “It’s just not well developed yet in Jakarta,” Eric of Standard Chartered said.

Where Jakarta falls short in transportation they make up in cultural tolerance. “Indonesian people are willing to adjust to expatriate culture,” said Eric.

Tokyo ranked 11th as the most expensive globally, making it the most expensive in the Asia-Pacific region, according to the ECA survey.

Living outside their home countries, expatriates have to assimilate to the culture and learn the language in order to succeed, Eric said.

“Whatever money it costs, most expats don’t complain about the costs of living. We do appreciate all the great things that Indonesia has to offer, and that’s why we choose to live here,” said Larson. “You kind of become Indonesian. It gets in your blood and you don’t want to leave.”

By Arman Dzidzovic on 01:52 pm Jun 13, 2014

Japanese Households Seek Rupiah Bonds as Indonesia’s Presidential Vote Nears

Japanese households have bought the most rupiah-denominated notes in 19 months on expectations that Indonesians will vote for a pro-reform president. (JG Photo/ Dhana Kencana)

Japanese households bought the most rupiah-denominated notes in 19 months as polls suggest Indonesia is set to elect a pro-reform president next month.

Sales of the uridashi bonds, securities targeted at retail investors in Japan offering higher yields than near-zero rates at home, jumped to $58.1 million in May, from $1.92 million the previous month and the most since $72 million in October 2012, according to data compiled by Bloomberg.

Joko Widodo, who broke ground on a commuter rail system delayed for decades and dismissed senior officials for poor performance as governor of Jakarta since 2012, led rival Prabowo Subianto 50 percent to 41 percent in a poll by Deutsche Bank released this week. Prabowo sees Southeast Asia’s largest economy as “underleveraged” and would raise its debt as a percentage of the economy, his economic adviser said this month.

“Positive election sentiment, built on expectations that reform-oriented Widodo will become the country’s new leader, has given Indonesian bond and currency performance a boost this year,” Bertram Sarmago, a fixed-income investment director at Nikko Asset Management Asia, whose parent company has $158 billion under investment, said by e-mail on June 9.

Five-year Indonesian rupiah Treasury notes yielded 7.6 percent on Thursday, the highest after India among the 10 biggest Asia-Pacific economies. The rupiah has rallied 3 percent this year, the most in Asia against the U.S. dollar after the Indian rupee and the South Korean won, ahead of Indonesia’s July 9 presidential election.

Rupiah demand

The biggest seller of uridashi notes in the Indonesian currency among three issuers in May was Svensk Exportkredit, Sweden’s export-financing arm, followed by Kommunalbanken. The coupon payments and the redemption of these bonds are all in yen.

“Why do we issue lots of these Indonesia rupiah notes at the moment?” Richard Anund, a senior director based in Singapore, who oversees Svensk Exportkredit’s funding and lending activities in Asia, said in a June 11 interview. “That’s simply because that’s what investors want to have.”

Svensk Exportkredit’s five-year notes, which settle on June 27, pay a 7.08 percent coupon and were issued at par. Japanese corporate bonds maturing in three to five years yield 0.35 percent on average, according to Bank of America Merrill Lynch indexes.

High rates

“The number one thing in Mrs. Watanabe’s head is yield,” said Wellian Wiranto, an economist in Singapore at Oversea- Chinese Banking Corporation, referring to housewives in Japan.

For carry trades, Japanese investors have become more open to units such as the rupiah as the appeal of currencies including the Australian dollar has fallen, Wellian said. Carry trade refers to when investors sell a currency with a relatively low interest rate such as the yen and use the funds to buy higher-yielding assets in a different currency.

The appeal of rupiah uridashi bonds has increased as Indonesia’s central bank has raised interest rates, Wellian said. Policy makers boosted the benchmark rate to 7.5 percent in November, the highest since 2009, and has kept it there since.

Investors have signaled support for frontrunner Joko. The Jakarta Composite index of shares surged 3.2 percent when his candidacy was announced on March 14.

“By next month, at least we’re going to know who is going to rule Indonesia for the next five years, and we’ll roughly know what kind of policies they’re going to pursue,” Oversea-Chinese Banking’s Wellian said.

Bloomberg

By Regina Tan on 01:41 pm Jun 13, 2014

In Indonesia, Foreign Investors Wait to See Who Will Be President

A woman stands near a picture of Indonesian presidential candidate Joko Widodo in Bandung, West Java on June 11, 2014. A month before Indonesia’s presidential election, the two candidates traded barbs in their first televised debate on Monday, with Widodo seen faring better than Prabowo Subianto, a former special forces general. (Reuters Photo/Beawiharta)

Jakarta/Taipei. Billions of dollars in foreign investment hinge on next month’s Indonesian presidential election, with at least one major company holding back after a former special forces general made a surprisingly strong entry into the fray.

A tight July 9 election that will decide who runs Southeast Asia’s largest economy for the next five years pits popular Jakarta governor Joko “Jokowi” Widodo against the ex-general, Prabowo Subianto.

Both favor a more nationalist agenda, underpinned by popular perceptions that the economy has for too long depended on selling off its vast natural resources cheaply to foreign buyers and that past governments have done little to nurture, and protect, local firms.

But Prabowo is seen as more fiercely nationalistic, while Jokowi is seen as a hands-on, more capable administrator. And despite Indonesia’s large pool of labour, relatively low costs and a growing middle class, many potential investors say they will wait until the election is decided.

At the top of the list of foreigners with big money to spend is Taiwan’s Foxconn Technology Group, the world’s largest electronics contract manufacturer and one of the major suppliers to Apple.

Its chairman, Terry Gou, made no secret of the fact during a visit to Jakarta in February that he liked dealing with Jokowi in discussions over whether to bring his company’s next giant investment to the Indonesian capital.

At the time, Jokowi was the clear front-runner in the election. He still is, but Prabowo has since been backed by the powerful Golkar party and opinion polls show the former general is catching up. A large percentage of voters are undecided, one survey has said.

Foreign direct investment in Indonesia was Rp 270.4 trillion ($23 billion) in 2013, up about 22 percent from the previous year. But growth slowed sharply to 9.8 percent in the first quarter this year, the government has said.

Foxconn, listed as Hon Hai Precision Industry in Taiwan, is waiting for the new government to take office in October before deciding whether to go ahead with a $1 billion manufacturing project in Indonesia, a company source had said.

Key sticking points appear to be Foxconn’s request for free land in Jakarta and Indonesia’s convoluted bureaucracy.

“Regarding the incentives Foxconn has requested, there’s no one they can talk to whose decisions will count,” said a source with direct knowledge of Foxconn’s situation. “Indonesia is a huge market for Foxconn. Foxconn truly hopes there will be a clear direction in their policies after the election.”

Jokowi seen as market-friendly

The investor community tends to favour Jokowi, a former furniture businessman, compared to Prabowo, according to interviews with senior executives and capital market players.

Indonesian stocks and currency were hit following Golkar’s unexpected announcement on the afternoon of May 19 that it would back Prabowo.

The rupiah has weakened further, trading around 11,800 to the dollar currently against roughly 11,400 before the announcement. Jakarta’s main stock index remains more than 1 percent below the pre-announcement level.

“Generally, business people feel that Jokowi is more business-friendly,” said Kenichi Tomiyoshi, President Director of the Japan External Trade Organization in Jakarta.

Jokowi has earned a reputation of being a hands-on leader and a problem solver, analysts say.

“A lot of problems that businesses face in Indonesia are operational issues such as land acquisition. Based on his track record, he is likely to be more closely or directly involved in trying to solve these issues,” said Anton Alifandi, an analyst at IHS. “If Jokowi wins, businesses will look at what he does in the first six months or a year. If they see some results and that he can deliver what he promised, you’ll see the foreign investment coming in.”

The attraction of Indonesia to investors from countries like Japan, South Korea and the United States lies with its population of 240 million, the world’s fourth-biggest, as well as its expanding middle class.

Many companies are also keen to diversify their operations away from Thailand, which has been rocked by political unrest. In Vietnam, another regional manufacturing hub, anti-China riots broke out last month over disputed sovereignty in the South China Sea.

Japanese firms are keenly eyeing the automotive, food products and financial services sectors in Indonesia, Tomiyoshi said. “Japanese companies face limited growth in their domestic market so they have to look overseas, particularly Indonesia.”

Chief Economic Minister Chairul Tanjung has invited Samsung Electronics to invest in a mobile phone factory in Indonesia and the South Korean company is considering it, said Lee Kang Hyun, vice president of Samsung Electronics Indonesia.

Mineral export ban to stay

In January, the government imposed a controversial export tax and a ban on mineral ore shipments to force miners to build smelters and processing plants, spurring investor concerns that it signals a more protectionist Indonesia.

Jokowi and Prabowo are both unlikely to lift the mineral ore export ban, party officials said.

Both presidential candidates are also likely to take a more protectionist approach towards the banking sector. Jokowi has proposed restricting the sale of national banks to foreign investors, while Prabowo will insist on “strict reciprocity” for the banking and insurance sectors.

Currently, foreign ownership of banks is capped at 40 percent. In July last year, Singapore’s DBS Group Holdings said it would not pursue a $7.2 billion takeover of Indonesia’s Bank Danamon after the deal was stuck in limbo for months.

US companies were planning around $61 billion in new investments in Indonesia over the next  three to five years “provided that the investment environment is conducive and welcoming”, according to a study late last year led by Ernst & Young.

But some investors believe it’s worth being in Indonesia in the long term.

While Indonesia struggles with a lag in labour productivity versus its neighbors and an uneven income distribution, these are “short-term woes that could be opportunities down the road if acted on,” said Bharat Joshi, an investment manager at Aberdeen Asset Management in Asia.

“We still like the attraction of the country’s rising wealth and favorable demographics, underpinned by low debt and increased consumerism,” Joshi said.

Reuters

Indonesia’s State Spending Drops in Jan.-April Period, While Realized Revenue Rises

Workers build a hotel on the construction site in Yogyakarta on May 21, 2013. State spending dropped in the January-April period amid lower regional transfers. (JG Photo/Boy T Harjanto)

Jakarta. Indonesia reported that state spending dropped in the first four months as less money was transferred to provinces and districts across the country.

The government disbursed 23.5 percent of the state budget in the January-April period this year, down from realized expenditure of 23.7 percent of the state budget in the same period in 2013.

According to the Finance Ministry, the decrease in realized state expenditure was due to lower transfers to regions from the central government this year. Still, expenditure by the central government during the period this year is much higher than in 2013.

“Expenditure by central government in 2014 is 1.8 percent higher than the realized percentage of last year,” said Yudi Pramadi, the spokesman for the Finance Ministry, in a press release published on the Cabinet Secretariat on Wednesday.

Realized revenue amounted to Rp 413.11 trillion ($35 billion), or 24.8 percent of the state budget in the January-April period this year. That amount is up 1.3 percent from the same period last year.

Meanwhile, non-tax state revenue during the January-April period is 2.2 percent higher than in the same period last year. During the period, state deficit also narrowed.

“The narrowing deficit is because there was increase in revenue and grant by 1.3 percent, while expenditure decreased by 0.2 percent from the realized expenditure last year,” Yudi said in the statement.

The ministry also added that realized financing as of April 30 reached Rp 120.23 trillion, or 68.6 percent of the state budget, up 19.5 percent from 49.1 percent in the same period last year.

By Ezra Sihite on 04:38 pm Jun 11, 2014

Indonesia Could Double Rice Imports as Election, El Nino Loom

Indonesia is encouraging its 240 million population to diversify from their heavy rice diet as the country is vulnerable to food crises. (AFP Photo/Romeo Gacad)

Jakarta. Indonesia could more than double its rice imports this year to keep domestic food prices stable as an election looms and with a possible El Nino weather pattern on the horizon, industry officials and analysts said.

The outgoing administration of President Susilo Bambang Yudhoyono could set aside its key self-sufficiency targets, importing as much as 1.5 million metric tons of rice to guard against spikes in food prices that could risk social unrest, they said.

Bigger purchases by the world’s fifth largest buyer of the grain would be good news for growers that typically supply the country such as Thailand and Vietnam.

Bangkok wants to offload grain from a controversial stockpiling scheme at the heart of its recent political turmoil, while Hanoi is looking to follow up on its successful bid to supply 800,000 metric tons of rice to the Philippines.

“It is likely that Indonesia will indeed import,” said David Dawe, senior economist at the UN’s Food and Agriculture Organisation in Bangkok. “My understanding is that there has been a bit of a shortfall in production, or not as much of an increase as they were anticipating.”

Dry weather late last year and flooding in early 2014 hurt harvests on parts of the main rice-growing island of Java.

And forecasts that El Nino is likely to develop around mid-year could keep local prices strong. The weather phenomenon usually brings dry conditions to Southeast Asia.

“They definitely don’t want prices going up during the election,” said Dawe, who met with Indonesian officials in Jakarta last week. He estimated total imports at 1.1 million metric in 2014.

With campaigning underway ahead of the presidential election on July 9 and a new government to be inaugurated in October, Yudhoyono will have one eye on his legacy and will not want to risk unrest over food prices, analysts said.

Jasmine, Basmati

Although the private sector is allowed to import small amounts of specialist rice such as jasmine and basmati, Indonesia’s powerful food procurement body Bulog is the dominant rice buyer, tasked with maintaining annual stocks of 1.5 to 2 million metric tons.

The main rice harvest in the nation of 240 million is usually in June or August, with Bulog typically deciding whether to import from June onwards.

Bulog is yet to ship in any rice this year, CEO Sutarto Alimoeso told Reuters, adding that while it currently had no plans to import, the government was analysing the situation. He said that stocks stood at 1.93 million metric tons.

The agency said it did not import rice at all last year, but some industry sources estimate the nation shipped in up to 700,000 metric tons. Government data is often disputed by market participants in Indonesia.

The U.S. Department of Agriculture predicts Indonesia will import 1.5 million metric tons of rice this year, while an official at the International Rice research Institute (IRRI) put the figure at 500,000 metric.

Rice stockpiles in India, Vietnam and Thailand are big enough to meet the needs of Asian importers until early 2015, according to the IRRI.

Indonesia’s government has cut its estimates for unmilled rice output to 73 million metric tons this year, compared to 71.29 million in 2013, but industry sources said this was still an ambitious prediction.

The nation was self-sufficient in rice in the early 1980s, but output gradually declined as farmland was used for housing as the population boomed.

Yudhoyono introduced a number of tough 2014 self-sufficiency targets in 2009 after food prices spiked, but government efforts have been hit by a series of corruption scandals, while expansion plans have often been blocked by red-tape.

By Michael Taylor on 11:03 pm Jun 10, 2014