June 7, 2016 edition

Indonesia has missed an opportunity to graduate this month. Last Wednesday, Standard & Poor's (S&P) global ratings confirmed that Indonesia's rating will remain in non-investment grade territory. In S&P language, that means BB+, just one notch short from getting out of the junk category. No offence taken, in financial market lingo, non-investment grade bond is simply a junk bond.
Two weeks ago, the hope of passing that critical one notch emerged when an S&P entourage came to Jakarta for an evaluation, and even paid a short visit to President Joko Widodo. The government's public relation machinery wasted no time in flooding the media with positive signals. Officials boasted that Indonesia deserves to get an investment grade rating.

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More Economy articles in other editions

May 31, 2016 edition

Last week, we witnessed several global events, each raising doubts of a quick Indonesian economic recovery this year. Even Bank Indonesia has recently revised down their 2016 growth projections from their earlier 5.4 percent estimate to its current subdued 5.2 percent. Plus, several government options to spur growth are quickly narrowing down to a limited few.
One of these events was last week's G-7 meeting in Tokyo, where seven major industrialized countries failed to reach an agreement on how best to coordinate monetary and fiscal policies to revive their lackluster economies. For example, the Japanese government still wanted to prevent its currency from strengthening further so it can push exports and limit imports, which was promptly opposed by the United States. There were also differences on how best to push growth. Some preferred a loose monetary policy that brings down interest rates, while others felt that a more aggressive fiscal policy, involving more government spending was called for. Unfortunately, this means that global economic growth will remain weak and cannot be relied on to boost Indonesian economy through exports.

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May 24, 2016 edition

Global markets received a sudden shock last Thursday. Speculations about the next Federal Reserve (Fed) rate hike returned and spread rapidly like a haunting specter. The info spread from the announcement of the Fed's meeting notes, which is obligatory for transparency purposes. It revealed that in last April's meeting, the Fed's Open Market Committee discussed the possibility of a June rate hike should US economic data and labor market continue to improve.
This recent round of speculation drove the US dollar up, while gold prices took a hit. Stock prices in many countries fluctuated. Naturally, the rupiah suffered because of it. The price of one US dollar in Bank Indonesia soared to Rp13,534, the highest level since February 19.

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May 17, 2016 edition

Last week, the government announced this year's first-quarter growth rate reached 4.92 percent, slightly higher than the 4.73 percent growth for the same period last year. Earlier, April inflation, year-on-year, was reported to drop to 3.60 percent, still comfortably within Bank Indonesia's inflation target range. Also, the rupiah remained stable at Rp13,300 per US dollar, just slightly weaker than previous week's Rp13.100 per US dollar level.
In addition, a team from Standard & Poor's (S&P) recently met with the government, which points to a possible rise in Indonesia's sovereign ratings, which for quite some time have languished at the BB+ level, one notch below investment grade. So far, S&P is the only major global rating agency that has not issued Indonesia an investment grade, as Moody's and Fitch have done.

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May 10, 2016 edition

A big bet is going on in financial markets. Its main player is Kyle Bass, a Texas fund manager who had his big moment during the 2008 global crisis. At that time, Bass's prediction about the collapse of subprime mortgages was vindicated. This time, he is betting against the People's Republic of China.
Bass is convinced that the renminbi will fall apart. The Chinese economy cannot shoulder the bad debt gnawing at its banking sector. Not only that, Bass calculated that China's foreign reserves are not as big as the official numbers say. Bass has amassed billions of dollars for the sole purpose of investing against the renminbi.

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May 3, 2016 edition

Last week, the banking sector began to publicize its first-quarter performance. In fact, some banks already held their annual shareholders' meeting. Although they are still optimistic of improved performance in this year's second half, the poor first-quarter results throw some doubt on whether the banking sector's recovery will actually take place this year.
In January 2016, data showed bank credit growing at just 10 percent from a year ago. With sluggish credit growth, the banks have been aggressively lowering their deposit faster than their loan rates. This explains the rise in the sector's net interest margin (NIM or the difference between deposit and loan interest rates) to 5.6 percent in January this year from 4.2 percent last year. However, this was not enough to cover the rising cost of non-performing loans (NPLs), due to slower economic growth. Sector-wide NPLs rose to 2.7 percent in January this year from 2.4 percent last year, while the sector's profitability dropped 5 percent over the same period. The worry is how far last year's weak growth will extend into 2016.

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April 26, 2016 edition

Central banks are impotent and out of ammunition. There is much talk about this ridicule among economists, seeing central bankers' futile efforts to recover optimism and economic growth. No less than Mervyn King, former Bank of England governor, had to admit that sense of powerlessness in his new book The End of Alchemy.
King's confession carries some truth. Various central banks, like those in Europe and Japan, have deployed a myriad of policies-from quantitative easing, which is basically printing money to buy government bonds, to squeezing the interest rates to a negative level. And still, the economy refuses to rise from its stupor.

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