|Indonesia Update | May 31, 3018
Authors: Kim Yaeger, Artha Sirait and Ian Saccomanno
|THE COUNCIL'S TAKE|
Indonesia Intensifies Response to Market Sell-off
On May 15 and then again during an extraordinary meeting on May 30, Bank Indonesia (BI) raised its benchmark seven-day repo rate by a total of 50 basis points to 4.75 percent amid a fall in Indonesian markets and foreign capital outflows. The moves were the first hikes since November 2014 and come as GDP data for the first quarter registered slightly below expectations. BI argued action was needed to ensure Indonesia’s macroeconomic stability and Governor Perry Warjiyo has promised a continuing tight bias for monetary policy. BI will also continue to intervene in bond and foreign exchange markets to stabilize the currency, though the strategy has not had much success yet. BI has so far bought about $3.5 billion in government bonds in 2018. While these monetary policy instruments would be used to ensure stability in the short term, Governor Perry also promised that BI would also support longer-term growth by loosening macroprudential policy, accelerating money market development plans, and reforming payments systems.
Recent market turmoil has left BI trying to balance political needs to keep the rupiah stable ahead of elections with the need to stimulate growth as GDP growth continues to underperform. Indonesia is one of the countries worst affected by the combination of rising U.S. yields and higher oil prices, with its fiscal and current account deficits making it vulnerable. The outside pressure on Indonesia’s markets has been compounded by an unusual series of terrorist attacks, a slight slowdown in consumption, and weakening corporate earnings. A total of $4 billion has left over the past month. The rupiah broke 14,000 to the dollar in early May, its weakest point since 2014, and foreign investors have sold off $2 billion in government bonds since the start of April (38 percent of all rupiah-denominated bonds are held by foreign investors). The Jakarta Composite Index has now fallen more in 2018 than Philippine markets, making it the worst performer in Asia and delaying several planned IPOs. However, since BI strengthened its policy response, the stock and foreign exchange markets been more stable and some large investors are arguing the market has bottomed out. Indonesia also remains in a stronger fiscal position than it was during the 2013 taper tantrum and still has about $125 billion in foreign exchange reserves and $60 billion in bilateral swap facilitates. Though it may come at the cost of some growth, these reserves and further adjustments of the interest rate as the U.S. Federal Reserve raises its rates should ensure some degree of market stability.
Golkar Supports its Chairman Airlangga Hartarto to be Jokowi’s Running Mate
Senior Golkar figures such as House Speaker Bambang Soesatyo and Head of Golkar Faction in DPR Melchias Marcus Mekeng (simultaneously Chairman of Commission XI overseeing Banking and Finance) have expressed their support for Golkar chairman Airlangga Hartarto to become Joko “Jokowi” Widodo’s running mate in the 2019 Presidential Election. As of the date of this article, Jokowi has yet to decide on his vice-presidential candidate and Hartarto refused to comment when asked of the possibility, although both have acknowledged discussing the matter.
Jokowi and Golkar enjoy a somewhat friendly relationship for a number of reasons. Although Jokowi was nominated by PDI-P in the 2014 Presidential Election, he was not considered as a PDI-P cadre. There were dissenting voices regarding Jokowi’s nomination but since he was a popular figure, PDI-P’s chairperson Megawati proceeded with Jokowi’s nomination. Following his election however, Jokowi and Megawati’s already ambivalent relationship continued to deteriorate. During a PDIP-P national congress in 2015, Megawati delivered a speech with Jokowi sitting in the audience that he was a success story of PDIP-P and his job was to remain in its service. Jokowi also was not invited to speak at his own party’s congress. PDI-P was said to also be unsatisfied as the party was only given four positions in the 34-member cabinet; in addition to Jokowi’s refusal to appoint Budi Gunawan, Megawati’s personal choice for the National Police Chief position.
On the contrary, Jokowi was invited to Golkar’s national congress twice and was asked to address the congress. He arguably has more influence with Golkar than his own party where he has never been treated with the deference one would expect considering his position. His growing popularity with Golkar is also thanks to Luhut Pandjaitan’s political muscle and the influence Pandjaitan has over Golkar. Luhut Pandjaitan was offered a formal position within Golkar’s party structure although he turned down the offer citing that he would like to focus on working as a cabinet member.
Golkar itself has not always been behind Jokowi. Being the government party during Soeharto’s era, Golkar has undergone extensive changes since the 1998 reformasi. Between 2014-2016, Golkar was divided into factions: Aburizal Bakrie v. Agung Laksono. The leadership issue started in 2014 when then Golkar Chairman Aburizal Bakrie decided to ally with Prabowo Subianto supporting him as a presidential candidate following Bakrie’s own failed campaign to become president due to poor support. Bakrie remained Prabowo’s ally even after Jokowi became president marking the first time Golkar playing an opposition role. This resulted in a split in the party. Subsequent to a few rounds of internal conferences, a temporary intervention by the Minister of Law and Human Rights, and the involvement of prominent Golkar political figures such as Luhut Pandjaitan; Bakrie stepped aside from the chairman position and Setya Novanto became Golkar’s chairman in May 2016. Golkar under Novanto’s leadership rejoined the government coalition backing up Jokowi.
In November 2017, Novanto was charged and later sentenced for his involvement in a major corruption scandal which resulted in him being replaced by Airlangga Hartarto. Hartarto has since led Golkar as its chairman and is simultaneously serving as the Minister of Industry in the Jokowi cabinet. Golkar currently is the second largest party in Indonesia following PDI-P.
|IN THIS UPDATE|
Jokowi's growth dream fades as Indonesia seeks stability instead The Jakarta Post 31st May 2018
State-owned firms prohibited from seeking fresh loans The Jakarta Post 30th May 2018
Finance Ministry lowers economic growth projection The Jakarta Post 30th May 2018
Golkar firmly supports Hartarto as vice presidential candidate - ANTARA News Antara News 29th May 2018
Indonesia holds simulations to prepare for IMF-World Bank Meeting The Jakarta Post 24th May 2018
EU upbeat on I-EU CEPA deal amid palm oil issue The Jakarta Post 28th May 2018
Indonesia, Peru to Enter a Free Trade Agreement Jakarta Globe 25th May 2018
Provisions on the Utilization of National Maritime Transportation and National Insurance for Imports and Exports of Certain Goods Amended Hukum Online 22nd May 2018
Indonesian products marketed at ASEAN street bazaar in Singapore The Jakarta Post 20th May 2018
Indonesia's New Central Bank Governor Pledges Focus on Rupiah Stability Jakarta Globe 24th May 2018
Digging Deep: New Indonesian Mining Law to Replace the Mining Law? Lexology 25th May 2018
Bank Indonesia increases reference rate to 4.75 percent The Jakarta Post 30th May 2018
Indonesia Raises Interest Rates Again to Stem a Slide in Its Currency WSJ 30th May 2018
Indonesia rate hike is coming early with election on horizon The Business Times 30th May 2018
Indonesia's Two Interest-Rate Hikes May Not Halt Rupiah's Rout Bloomberg.com 30th May 2018
Indonesia: Umbrella law for disaster risk insurance needed Asia Insurance Review 29th May 2018
India, Indonesia among Asia's most debt risky nations The Jakarta Post 29th May 2018
TRANSFAST Ties Up with Indonesia Post Office for Remittances | Markets Insider markets.businessinsider.com 29th May 2018
Bank Indonesia projects 5.2 percent growth in 2018 The Jakarta Post 25th May 2018
For Asia's Newest Central Bank Chief, It's a Trial by Fire Bloomberg.com 23rd May 2018
Indonesia: Formation of state-owned insurance holding company still in early stages Asia Insurance Review 23rd May 2018
Indonesia central bank steps up FX swap auctions to support liquidity The Business Times 21st May 2018
Indonesia Says Ready to Act, After Rate Hike Fails to Stem Rupiah Fall Jakarta Globe 18th May 2018
New Legal Framework for E-Money Hukum Online 18th May 2018
Industry Ministry to open food and beverage innovation center - ANTARA News Antara News 30th May 2018
House speaker urges government to consolidate rice data The Jakarta Post 22nd May 2018
Big Ag Turns to Peas to Meet Soaring Global Protein Demand Jakarta Globe 19th May 2018
Health coverage challenge: Reaching informal workers The Jakarta Post 21st May 2018
UGM launches app to help you help disaster victims The Jakarta Post 19th May 2018
Industry group seeks to enhance trade with India The Jakarta Post 18th May 2018
Indonesia welcomes APEC initiative in inclusivity, digital economy The Jakarta Post 29th May 2018
Gov't Wants More Local SMEs in E-Commerce to Reduce Inequality Jakarta Globe 29th May 2018
Disruptive Technology, Automation Force Change in Workers' Skills: McKinsey Jakarta Globe 28th May 2018
Hukumonline English | Industry 4.0: The Indonesian Perspective Hukum Online 25th May 2018
Indonesian ride-hailing firm Go-Jek says to expand abroad The Star Online 24th May 2018
Ministry Blocks Thousands of Radical Websites, Accounts Tempo 21st May 2018
West Java’s Kertajati Airport starts operation on Thursday The Jakarta Post 22nd May 2018