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June 13th, 2013 
Peter Nolan
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Indonesia’s President Susilo Bambang Yudhoyono has used a national address to reassure the country after markets took a hit of almost four per cent in one day.
The president’s speech came the day after a share-market plunge when foreign investors pulled out $US405 million, capping off a run of money flowing out.
“I have to tell you truthfully there is that problem, but what happened, the weakening of the currency, the stock market price, the slowing down of the economy, is not happening only in our country,” he said.
Asia-Pacific economist with ANZ, Daniel Wilson, says the amount of money moving is quite large.
“Through the whole year, through the first 6 months of the year, Indonesia attracted $2.8 billion worth of equity flows,” he said.
“So over half of that has been lost over the past 2 weeks.”
Indonesia is not alone, with money being moved out of emerging economies in the hopes of an improvement in developed ones.
There are also concerns about China’s growth, but Senior Economist with Standard Chartered, Fauzi Ischan, says Indonesia’s timidity when it comes to policy is also raising concerns.
“In spite of the fact that the economy is growing at more than six per cent a year, there is a concern, a growing concern, of weakening policy credibility,” he said.
The Indonesian currency the rupiah has breached the psychological comfort level of 10,000 to the US dollar.
The central bank has to keep selling its reserves of US dollars into the market to support it.
Mr Wilson says it’s not a cheap exercise.
“At start of year, Indonesia had about $113 billion in reserves – to the end of May, that has dropped to about $105 billion,” he said.
Indonesia’s Government is also under fire for not reigning in a fuel subsidy scheme that’s chewing tens of billions of dollars out of the budget.
The high monthly oil bill is also adding to a current account deficit.
Mr Yudhoyono also used his national address to flag changes to Indonesia’s fuel subsidy system.
He says he’s not afraid of making a change to fuel subsidies even though it could be politically unpopular.
“I take that political risk with full responsibility,” he said.
Fauzi Ischan says similar pronouncements have been made before, and a lack of action is generating market uncertainty.
“I think markets, investors and analysts are, in a way, tired of promises and pledges,” he said.
“They want to see actions done.”
The president says more will be revealed in next week’s revised state budget, which is being modified to deal with Indonesia’s new economic reality.
Topics:
government-and-politics,
markets,
stockmarket,
currency,
indonesia,
asia
Source Article from http://www.abc.net.au/news/2013-06-13/an-indonesian-president-address-market-uncertainty/4751324
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