Market Pulse

Confusing Signals For Investors

Financial markets have a very nasty habit. Once a country runs into trouble, immediately it will look around and start asking questions. Is anyone else out there facing the same fate? Thus, it's worth paying attention to latest events in Greece. Next month, Greek civil servants and pensioners may come home from work with empty pockets since the state coffers is nearly empty now with no prospect of replenishment in sight. Is Indonesia one candidate out there that might follow suit? Well, comparing the two economies, Indonesia's fate might be in much better shape than Greece's unfortunate destiny. However, the market does not need a precise resemblance to draw its conclusion. Usually, a clue is enough to create a jittery response. For one, Indonesia's first quarter tax revenue fell short miserably, only 13.65 percent of the annual expected revenue, the worst first quarter result in the last five years. So far, there is no sign that the government would hold back on its spending-spree programs as counter measures to prevent a ballooning deficit. However, if this trend continues, the government must fill at least a Rp200 trillion gap from the Rp1.296 trillion in expected tax revenue this year. In the meantime, last Wednesday the government announced new tax incentives for corporations. It seems odd that the government would reduce its tax generating ability while government revenue is short. It is, however, a correct policy and, more importantly, a necessary one. The objective is to increase investments, which will help boost economic growth. The real problem with the government's tax revenue, though, is its unrealistic target, an order that came from the highest level of government, despite the country's economic slowdown. Therefore, the only solution to this dilemma is a drastic reduction in government spending, if it wants to keep its budget credible.

April 28, 2015