Incentives Can Promote Positive Investor Sentiment
The government’s decision to not revise the 2018 state budget despite changes in some of the macroeconomic assumptions will have no significant impact on the investment climate. Amid global economic uncertainty, investors need long-term fiscal incentives.
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JAKARTA, KOMPAS – The government’s decision to not revise the 2018 state budget despite changes in some of the macroeconomic assumptions will have no significant impact on the investment climate. Amid global economic uncertainty, investors need long-term fiscal incentives.
On Thursday, the Jakarta Composite Index (JCI), the main price benchmark on the Indonesia Stock Exchange (IDX), increased for the fourth consecutive day. The JCI rose 0.24 percent to close at 5,907.87. Foreign investors booked a net buy of Rp 136.87 billion. Nevertheless, since the beginning of the year, foreign investors still booked net sales of Rp 50.53 trillion.
According to the Jakarta Interbank Spot Dollar Rate, the rupiah weakened to Rp 14,435 per US dollar.
Investment Coordinating Board (BKPM) head Thomas Lembong acknowledged that it would be difficult to reach the investment target this year. The volatile rupiah exchange rate at the beginning of the second quarter and the burgeoning trade war between China and the United States hampered investment flows, he added.
The government is preparing a solution to lure more investment and capital inflow. "We have to acknowledge that the situation is quite difficult. The political cycle is one of the problems. It is ahead of a political year, when investment tends to slow down," Thomas said in Jakarta on Thursday.
The BKPM aims for investment to reach Rp 765 trillion this year. In the first quarter, the realization reached Rp 185.3 trillion, consisting of domestic investment of Rp 76.4 trillion and foreign investment of Rp 108.9 trillion.
According to him, factors needed to create positive investor sentiment included the provision of long-term incentives, such as tax exemptions and the guarantee of smooth export and import flow. A number of countries in Asia have provided fiscal incentives such as tax exemptions as part of their commitment to attract investment.
"Market sentiment is very sensitive. The policies taken should not become blunders," he said.
The decision not to change the 2018 state budget is good for state revenue. Center for Indonesia Taxation Analysis executive director Yustinus Prastowo said the rise in non-tax income from natural resources such as oil and gas thanks to an increase in prices had a positive impact on overall state revenue.
"The state revenue target of Rp 1.89 quadrillion in the 2018 state budget will likely be achieved, although the realization of tax revenues will range between 94 percent and 95 percent," Prastowo said. In the 2018 state budget, the tax revenue target is set at Rp 1.61 quadrillion, while the state expenditure target is Rp 2.22 quadrillion. The budget deficit is expected at 2.19 percent of gross domestic product (GDP).
Regarding the performance of the share price index, Research and Investment at Kiwoom Sekuritas Indonesia director Maximilianus Nico Demus said the increase in the JCI was due to positive sentiment from within the country. The increase in foreign investor confidence, as indicated in their net purchases, has also created positive sentiment.
"The release of financial reports and financial performance data of the publicly listed companies also contributed to the increase in JCI," he said.
Meanwhile, the head of Economics & Research at UOB Indonesia, Enrico Tanuwidjaja, said foreign funds, which had previously been withdrawn from Indonesia due to reports of the lingering trade war between China and the US, had begun to return. Moreover, investors had noticed the stability of fundamental conditions in the Indonesian economy, he said.
"As seen in the bond market, investors have begun to return. The increase in Bank Indonesia\'s interest rate, stable inflation and high bond yields are now the magnet for investors," he said.
According to Enrico, the government\'s decision not to revise the 2018 state budget did not significantly affect market confidence. The decision has indirectly increased fiscal resilience because it is certain that the fiscal deficit will not increase, he said.
Spending
The executive director of Bank Indonesia\'s Statistics Department, Yati Kurniati, said industries that used imported raw materials such as textile, chemical and pharmaceutical industries were vulnerable to rupiah depreciation.
"Based on our survey, import-based companies did not change their selling prices, but lowered their margins. They tried not to suffer losses," Yati said.
However, there were improvements in the second quarter of 2018, as indicated by the increased use of production capacity or services. Sectors showing significant improvements include trade, hotels and restaurants, finance, real estate, and services.
"We surveyed 3,073 companies. We asked whether they had seen an increase in capacity utilization compared to the previous period. We’ve seen an increase in the capacity utilization from 76 to 78.4 percent," said Yati.
In a press release, the corporate secretary of department and supermarket chain PT Ramayana Lestari Sentosa, Setyadi Surya said total sales had risen 5.2 percent during May and June, with a 10 percent increase in fashion sales.
However, sales at Ramayana’s supermarket fell 20.3 percent. "The decline is due to the company\'s policy to close a number of supermarkets and to focus more on the fashion sector," said Setyadi.