W

e plan to publish an update of the past month's key economic and business events on the first Monday of each month. This will be followed by a commentary from and/or an interview with a key business or government player. The Jakarta Post's senior editor Manggi Habir prepared the following two articles. The first one highlights key events in various economic sectors providing a clear picture of how Indonesia's economy is faring amid the global economic meltdown, while the second article is an analysis piece on the overall economy. We welcome your comments and contributions at business@thejakartapost.com.

A long downturn. The fear that things will get worse before they get better is starting to sink in. Bad news has dominated the media. Weakness in the export sector last year has extended to other sectors in the early months of this year.

Dropping export numbers, rising layoffs and stagnant company earnings are all symptoms of a more serious and longer downturn.

Even the government's earlier confidence in its ability to better weather the storm is starting to falter, as Indonesia scaled back its 2009 growth targets to 3-4 percent from 4-5 percent earlier.

Market trends. The rupiah continued to weaken partly due to the market fearing Indonesia does not enough foreign exchange reserves to cover its maturing short-term overseas debt. The government has cut SBI rates to 7.75 percent and a further 25 basis point cut is a possibility.

Rupiah liquidity has eased with interbank markets and activity slowly getting back to normal. But lending rates remain sticky on the downward trend.

We are starting to see cost-cutting as a short-term reaction to the downturn. Companies' cost-cutting has translated into layoffs. Companies with small profit margins are the first to suffer. If they have high debt levels as well, they are bound to have cashflow problems.

This month, Pefindo, the local credit rating agency, reduced local mobile phone operator Fren Mobile 8's rating to a D, representing a default on their Rupiah-denominated bond coupon payment.

In addition, CP Prima is struggling to meet its bond obligations as its sales drop. The banks, which are tightening their own belts and cleaning up their books, are not expanding their loan books as the government hoped.

Looking ahead. The question going into April is: how long will this slowdown last? And with April being an election month, how much of a temporary and partially offsetting *stimulus' will election campaign spending be?

It would be interesting to see how consumer goods companies are preparing for this and whether their first half numbers will show a rise in sales.

March Headlines:

03Mar: Exports drop
January exports dropped 18 percent from the previous month and 36 percent from a year ago, the steepest drop since 1986.

Exports fell to US$7.2 billion, which included $1.0 billion of oil and gas exports. The steepest drop of 24 percent came from oil and gas exports, while non-oil exports dropped 16.7 percent.

The global recession is to blame. But also despite world governments' reiterating the importance of free trade, trade barriers have risen, drying up foreign trade flows.

And with large stimulus packages in place, the spending has taken on a nationalistic tone. Governments are directing stimulus spending toward local markets and prioritizing local workers on the labour front.

The problem is particularly acute for migrant workers, who regularly contribute to remittance flows. Many are packing their bags and moving back home.

05Mar: BI cuts rate
Bank Indonesia cut its benchmark SBI rate by 50 basis points to 7.75 percent, the third rate cut this year. The government signalled it would like to rely more on domestic consumption, as exports and investments plummet. Private consumption accounts for a significant 70 percent of aggregate demand.

05Mar: Incentives for workers
Workers with a maximum salary of Rp 5 million in the agriculture, fishery and manufacturing sectors do not need to pay income tax.

Under a new government ruling, workers in the above categories are eligible for a waiver in their income tax.

Export-oriented sectors were chosen, as they were the hardest hit by the global recession.

12Mar: Massive dismissals
Data collected across the country by the Indonesian Employers Association (Apindo) indicated the economic slowdown has affected 237,500 workers, a far higher number of Indonesians than the government estimated.

The association urged the government to disburse the Rp 73 trillion stimulus package immediately rather than wait till April.

12Mar: Banks urged to cut rates
The government required state banks to cut their lending rates so that other banks to follow.

The government said it was up to banks to decide how much to cut their rates by and added there would be no punitive measures imposed on banks for not reducing their lending rates.

BI data shows banks reducing their lending rates on average from 14.2 percent at the end of 2008 to 13.9 percent in March.

Analysts feel that lending rates below 13 percent would help the economy grow at about 4.5 percent.

14Mar: State firms avoid layoffs
The State-owned enterprise (SOE) Ministry instructed SOEs to avoid layoffs.

Currently, there are 139 SOEs employing some one million workers nationwide.

The ministry was projecting Rp 70 trillion in profits this year, down from Rp 75 trillion achieved last year.

Pertamina is the largest contributor, projected to generate Rp 20 trillion in profits, followed by PT Telkom, BRI and Bank Mandiri. PLN is the worst performing SOE, with a losses of Rp 13.1 trillion.

18Mar: Kimia, Indofarma merge
The government announced merger plans for state-owned pharmaceutical companies PT Kimia Farma and PT Indofarma.

The merger of the two publicly listed companies is aimed at improving efficiencies by boosting production volumes.

The initial plan was to complete the merger this year, but subsequently the government noted the approval process required a longer time as it needed consent from multiple parties, including the Ministry of Finance and the House of Representatives.

19Mar: Banks limit loan growth
As of the third week of March, lending grew by a meager 0.1 percent to Rp 1,286 trillion, compared to a 3.4 percent growth rate for the same period last year.

While the first quarter tends to be a slow period, the growth remains much weaker than a year ago. BI is projecting loan growth will reach 15.6 percent this year, which is much lower than last year's 30 percent loan growth.

23Mar: RI, China strike deal
China agreed to disburse the remaining part of the loan package it had committed to, funding the first 10,000 megawatt crash program. The Bank of China committed to lending US$592 million for the Indramayu power plant.

The project is 71 percent completed and is expected to finish by September this year.

The China Exim Bank committed to financing the Suralaya and Paiton power plant projects worth $615 million, only $188 million of which has been disbursed.

The projects are 64 percent completed.

The Pacitan, Pelabuhan Ratu and Meulaboh power plant projects are worth $899 million in total. The China Exim Bank committed to financing them, but is still negotiating with PT PLN the terms of condition and the amount of funding.

There was a snag to PLN's financing from Chinese banks as Merpati, Indonesia's second airline company, faced difficulties in meeting its commitments to purchase 15 Xinzhou-60 aircrafts, at around $15 million each from China's Xi'an Aircraft Industry.

Negotiations are underway to settle the Merpati transaction, the government explained.

24Mar: RI, China sign $15b deal
Indonesia and China have agreed on a 100 billion yuan currency swap facility to provide short-term foreign exchange liquidity, which will help boost bilateral trade and investment between the two countries.

This swap line is on top of the multilateral swap arrangement signed under the recent Chiang Mai Initiative, whereby Indonesia is set to receive about $12 billion from Japan, $4 billion from China and $2 billion from South Korea.

These facilities are confidence boosting measures aimed at easing pressure on the Rupiah and allowing it to cope better with volatile and sudden foreign fund movements, by bolstering Indonesia's foreign exchange reserve position.

The country has about $22.6 billion worth of short-term overseas corporate debt maturing this year against a reserve of about $53.9 billion.