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Jakarta Post

Politics, not macroeconomic problems, hamper economy: DBS CEO

  • The Jakarta Post

    The Jakarta Post

Singapore   /   Fri, July 10, 2015   /  03:53 pm

It is mostly politics, rather than macroeconomic problems, that has caused Indonesia'€™s economy to underperform, Piyush Gupta, the CEO of Southeast Asia'€™s largest bank, DBS, has noted.

Piyush said the political noise resulting from the rivalry between the coalition government and the opposition camp at the House of Representatives tended to hinder the government'€™s reform initiatives.

The CEO told economic editors from Indonesia, India, China, Taiwan and Hong Kong in Singapore, Thursday that the government of President Joko '€œJokowi'€ Widodo, which took over last October, created very high expectations when it immediately moved to slash fuel subsidies and allocated the bulk of the savings to infrastructure development.

'€œThe agenda of the new government was well thought out and the expanded fiscal space allows for bigger investment spending. But unfortunately, all those good projects have yet to be put on stream,'€ he said at a regional media briefing held on the sidelines of the two-day DBS Asian Insights Conference.

Included among the speakers and panelists on the second day of the conference on Friday are former president Susilo Bambang Yudhoyono along with Jusuf Wanandi, the cofounder of the Centre for Strategic and International Studies (CSIS), a Jakarta-based think tank.

The Finance Ministry confirmed in Jakarta early this week that capital expenditure during the first six months was still less than 10 percent of the total budgeted for the whole year.

'€œEven if the government significantly increased the pace of its investment spending in the second half, the year may end with only 55 to 60 percent of the investment budget implemented,'€ DBS chief economist Gundy Cahyadi noted.

Most international analysts have revised down their projections of the Indonesian economy to below 5 percent due to the combination of negative external and internal factors.

But Piyush noted that Indonesia'€™s economic fundamentals remained strong.

'€œWith a government debt ratio [against gross domestic product (GDP)] down to only about 25 percent now and foreign exchange reserves twice as large as its short-term debts, Indonesia could deal with any risk of reverse capital flow,'€ he said.

Gundy concurred that net capital inflows (portfolio) to Indonesia over the past 18 months reached a total of US$22 billion, even larger than the inflows during the commodity boom of 2010-2012.

'€œAs most of the capital inflows went to government bonds of more than five years, it simply indicates that market confidence in the long-term outlook of the economy remains strong,'€ Gundy added.

 He said the government should go all out to accelerate the pace of investment spending during the second half in order to strengthen market confidence in the government'€™s policy making and implementation.

'€œI think the government has adequate fiscal space to increase the budget deficit from 1.9 percent now to over 2.2 percent in order to provide pump-priming for the economy,'€ Gundy added.

Both Piyush and Gundy played down the impact of a stock market bubble in China over the past three weeks that has forced the suspension of trading of 1,300 from about 2,800 companies listed on the Shanghai and Shenzen stock exchanges. The suspended stocks had a total market value of $2.2 trillion, or more than twice as large as Indonesia'€™s GDP.

'€œI think the stock price bubble was only a market correction. It was not a crash because the 30 percent fall over the past month, though wiping $3 trillion off the market, only took place after the Shanghai stock exchange saw a rally of over 150 percent over the past year,'€ Piyush noted. (vin)

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