T

he government is considering reactivating the crisis alert status that it deactivated recently as negative external sentiment hit the nation’s financial markets hard again on Monday.

The rupiah dropped 1.7 percent to Rp 8,938 against the US dollar as refreshed fears of a global economic slowdown over eurozone debt woes and the US’ stalling economic recovery prompted foreign investors to dump risky assets and shift to savings or safer instruments such as the US dollar.

In the stock market, international funds, which control more than half of publicly traded stocks at the Indonesia Stock Exchange (IDX), sold a net Rp 532 billion (US$59.75 million) on Monday, pressuring the benchmark stock index to tumble 5.64 percent or more than 200 points to 3,348.71.

“If the condition turns back to a point where we need to be wary, we will step up to alert again, based on our crisis management protocol. We continue to monitor market updates,” Finance Minister Agus Martowardojo said on the sidelines of a regional discussion on corporate governance.

Last week on Friday, the government lifted the crisis alert status it had activated on Sept. 14 as selling pressure had eased since after foreign funds began to buy the nation’s financial assets again.

The alert status indicates the need to utilize the coordinated crisis management protocol between the government, Bank Indonesia (BI) and related institutions including the IDX which would step into the market to calm volatility and stabilize prices.

From early this month to Sept. 26, foreigners dumped Rp 6 trillion of stocks and reduced their ownership in government bonds by Rp 28.42 trillion, pressuring the rupiah past the Rp 9,000 psychological mark after fluctuating between Rp 8,400 and Rp 8,900 previously throughout the year.

“There’s a change in the financial market over global conditions that we are ready [to face],” Agus said,
citing a potential delay of the planned issuance of $1 billion worth of dollar-denominated Islamic bonds (sukuk) if market uncertainties prompt investors to ask for higher returns than the government’s “corridor”.

Spiking government bond yields — which means falling prices — has strained the government’s and companies’ balance sheets as borrowing costs surge, while lower stock prices could have negative impacts on listed companies’ valuation.

Past crises show that financial market turmoil could affect the real sector as negative perception about the economy could multiply as a weaker rupiah could hurt people’s purchasing power and the government’s and companies’ ability to repay foreign debts.

“Indonesia’s stock exchange cannot fight against the regional market dynamism,” IDX president director Ito Warsito said on the sidelines of the same event.

The Jakarta Composite Index (JCI), however, has over performed regional and global peers as it lost 9.59 percent so far this year versus more than a 10 percent slump in Singapore, Thailand, South Korea, Japan, Hong Kong and India, he added.

Ito said that a stronger base of domestic investors had helped minimize the stock index’s slump despite heavy foreign selling pressures amounting to Rp 14 trillion in the past two months.

“Our domestic investors have gotten more mature, smarter, very different to 2008 when foreign investors’ sell-off prompted selling actions across the board.”

Indonesia’s domestic stock investors increased by 200,000 in the past two years, a number Ito considered “enough” to mitigate negative external shocks in the stock market. Domestic investors’ transaction currently accounts for 66 percent of the overall 115,000 transactions.

Authorities have reiterated the urge for investors not to panic and be overly worried as Indonesia’s fundamentals remain strong despite global economic uncertainties, with economic growth targeted at 6.5 percent, while inflation remains manageable at below 5 percent, public debt level low at about 26 percent of the country’s gross domestic product (GDP).