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Developments in Monetary Sector 2014:Q3
Figure 3: Movements in Indonesia Stock Exchange (IDX) and SUN Yield Index 10 year maturity, August 2011 – August 2014 (%)
IDX has posted modest growth, yield SUN yield shows an upward trend once again
Source: IDX, CEIC, and Bloomberg (2014)
During the closing session on 29 August 2014, Indonesian Stock Exchange (IDX) continued to show positive albeit flat trend. Despite posting a slight increase (0.94%) compared to the position in the previous month, IDX reached 5,136 levels in August 2014. Besides, IDX reached a new benchmark when it broke 5000 points price level. In fact, on 21 July 2014, IDX closed at 5,206, which is the highest level for IDX, which occurred at a time when the outcome of the Presidential elections were announced. Nonetheless, in late June 2014, IDX suffered a correction of -0.31% compared with the previous month. This was attributable to restrictive liquidity, as well as a continuation of the “wait and see” attitude of investors. The hope is that such a condition will not come to end sooner than later, as a result of flawless conduct of the general elections, which induced high market optimism in the newly elected government. Meanwhile, during quarter II-2014 foreign investors bought IDR 19.5 trillion in securities, which is lower than the volume of transactions made in quarter I-2014 of IDR 24.62 trillion . Moreover, the Sharia Index contributed 60% of the performance of IDX valued at IDR 5, 200 trillion (y-t-d) on 27 August 2014.
On the other hand, bonds markets registered an increase in the yield on State Bonds (SUN) in late August 2014. Sun yield rose by 11 bps to become 8.28% compared with the previous month. In late July 2014, SUN yield was 8.16% lower than 8.35% posted in June, 2014. The fluctuation was attributable to the fact that investors are still in “wait and see” mood as they explore and project economic conditions in the wake of the presidential elections. In the meantime, net purchases of securities by foreign investors on government securities (SBN) registered IDR 42.68 trillion, which during quarter II-2014 showed an increase of IDR 37.08 trillion.
International 2014: Q3
Figure 13: Indonesia Balance of Payments Position, 2011:Q2-2014:Q2 (USD Billion)
Indonesian Balance of payments has registered improvement
Source: Bank Indonesia and CEIC (2014)
Indonesian balance of payments in quarter II-2014 has improved. The Surplus on the balance of payments had increased by 107.95% from the previous quarter to reach USD 4.3 billion. Based on year-on-year calculation, the balance of payments position as this edition went to press was far better than the condition in quarter II-2013, which posted a deficit of USD 2.48 billion. During this quarter, the increase in the surplus was attributable to the surplus on the capital and financial account which was larger than the deficit registered on the current account. The surplus on the capital and financial account rises to USD 1.9 billion, larger than the increase in deficit registered on the current account.
The deficit on the current account soared in quarter II-2014. The deficit of the current account increased by USD 4.15 billion in quarter I-2014 to reach the level of USD 9.11 billion. The rise in the deficit was as a result of deterioration of the balance of trade in goods, balance of trade in services, and the primary income balance. With regards to the balance of trade in services, the deterioration was attributable to the increase in the use of imported freight and foreign financial services. Meanwhile, with respect to primary income balance, the deterioration in performance was attributable to the increase in government obligations to foreign direct and portfolio investments in Indonesia that reached USD 1.19 billion.
The surplus on the capital and financial account in quarter II-2014 registered an increase. In quarter II-2014, the surplus on the capital and financial account was USD 14.51 billion, which in percentage terms represented an increase of 89.78% over the surplus registered in quarter I-2014 (USD 7.65 billion). The position on the capital and financial account by and large rises whenever the net flow of foreign direct investment as well as ‘other investments’ register a surplus. The same is evident if viewed on a y-o-y basis, whereby the surplus on the Indonesian capital and financial account posted an increase of 68.23% (surplus in quarter II-2013 was USD 8.63 billion).
Latest Economic Developments 2014:Q3
1. Contraction in government expenditure has had adverse impact on the economy
Indonesia posted slower economic growth rate in quarter II-2014. According to data released by BPS, Indonesia registered economic growth of 5.12% (y-o-y) in quarter II-2014, which is far lower than 5.76% (y-o-y) posted in the same period the previous year. Indonesian economic growth has shown a downward trend over the last several quarters, which has complicated government efforts to achieve economic growth target of 5.5% (y-o-y) in 2014. To that end, this will remain a formidable challenge for the new government.