Here Again, Inconsistency and Volatility
Yopie Hidayat (Contributor)
IT has been six months since the Covid-19 pandemic began strangling Indonesia. Financial markets have been rocked back and forth by positive and negative sentiments, at the same time. And just as the market seemed to calm down, within the last week a powerful headwind suddenly blew hard. The rupiah slipped, coming closer to 15,000 per US dollar. The IDX Composite once passed the psychological threshold of 5,000, triggering the emergency stoppage of the trading since the price dropped too fast.
Before this shock arrived, the situation in the frontline against Covid-19 seemed good. The government kept pumping optimistic sentiments into the market, saying that the final solution to overcome the pandemic is already in sight. This optimism is based on the belief that by the end of the year, there will be a vaccine to cure the coronavirus. The government has been putting all efforts to secure its supply. Indonesia must get adequate dose when the vaccine is ready. Protection from an effective vaccine will make the public feel safe in their activities. The economy can quickly move again.
This strategy is not wrong. But there are a few vulnerabilities there. First, there is no guarantee that a vaccine to prevent Covid-19 can be ready in such a short time. Furthermore, by concentrating on the vaccine, the government gives off the impression that it has let go of preventive measures, or at the very least loosened the restrictions that stave off the spread of Covid-19.
Despite these possibilities, the aura of optimism still lingered in the market. The economy showed signs of life even though the pandemic is not over. Investors paid more attention to issues other than the pandemic. For example, the central bank independence is under threat of disappearing because the government and the House of Representatives (DPR) are planning to change the law regarding the central bank. The focus of the market’s attention is more pointed to President Joko Widodo’s plan to keep asking Bank Indonesia’s help in covering the government’s budget deficit until 2022.
Then comes the bitter reality check. New cases of Covid-19 are growing in number more quickly by the day. Since the end of August, the addition of new cases has kept breaking records and surpassed 3,000 cases per day.
Seeing this scary numbers, the government seemed to blink, taking an about face. In the cabinet meeting on September 7, Jokowi stated that health is the number one priority. The restart of the economy must wait until public health problem is mitigated thoroughly.
The biggest blow to the market came on Wednesday, September 9. Jakarta Governor Anies Baswedan took a policy that he compared to stepping on an emergency brake. Jakarta will return to implementing the initial version of its Large-Scale Social Restrictions (PSBB) regime. Unlike the current transitional version, with many relaxation, the old PSBB regimes is much stricter. On the following day, stock prices and the rupiah immediately slumped. The market seemed to not care that Indonesia’s foreign reserves had recorded its all-time high of US$137 billion dollars at the end of August.
The furious debate about policy options in response to the pandemic suddenly flared up again. Should the government prioritize public health and safety, or should it lean more towards restoring the economy? This policy tug-of-war mainly is happening among the government officials themselves. There is no consistency between the policies of central and the regional governments. Anis feels certain that he has to bite the bullet. But in Jokowi’s economic ministers’ point of view, it was just a reckless action without proper preparation.
This political brouhaha just creates another uncertainty. Until the weekend, three days after Anies’ announcement to stepping the emergency brake, market analysts have not gleaned a clear picture. How far the restriction will go this time, and what will be the effect on the economy?
In this highly unpredictable situation, volatility is the usual response from the market. Investors tend to overshoot to everything. But to those with nerves of steel for risk-taking and speculating, these are the times that are the most exciting.