For a better future By Renaldy Effendy Heading into the new year, we expect to see continued growth in the economy and also better value of the Rupiah especially after the policy initiatives from the government to spur growth. Just before the end of 2014 (Fed meeting on December 16-17), Rupiah experienced a meaningful decline reaching almost IDR12,900/USD. In order to prevent further depreciation of the Rupiah several fundamental actions have been taken by the government. One of the strategies that were implemented was the move to lift up the fuel price by cutting subsidies and put idle money into productive use. This should reinforce investor confidence on the new government in its willingness to improve Indonesia’s structural growth. The global backdrop has been in favor of the policy. Indonesian government recently decided to lower the fuel price following the global oil price decline. It also removed the subsidies for premium gasoline (price went down to IDR7,500 per liter from IDR8,500). On the other hand, diesel is still being subsidized (IDR1,000 per liter) but the price has been cut from IDR7,500 to IDR7,250 per liter. In our view, when the price of global oil falls below USD55/barrel, it could place positive impact to the Indonesian economy. At the end of the day, people will have more purchasing power to consume goods as household income increases and the value of Rupiah will be lifted as the demand for the currency increases. In addition, if the government succeeds in reallocating funds to more productive sectors such as infrastructure, we believe this will spur optimism among investors looking into Indonesian equities. The government’s plan to improve Indonesia’s infrastructure will be realized sooner than expected. Not only because of strong determination from President Jokowi, the government now has ammunition from the fuel subsidies cut (IDR216tr more for capital spending). #DailyFocus ow.ly/GQC89
Posted on: Tue, 06 Jan 2015 02:15:19 +0000
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