00:00Global investors are rapidly losing confidence in Indonesia as the nation's stocks tumble
00:04and its currency sinks to all-time lows. The benchmark stock index has become the worst
00:09performer this year among more than 90 global gauges tracked by Bloomberg. Investors have
00:14been unnerved by President Poboyo Subianto's interventionist agenda, including taking direct
00:20control of key commodity exports to curb tax evasion. And on that topic, we've just had
00:26some breaking news in the past few moments from Danantara, the sovereign wealth fund
00:34subsidiary. It says that it will be respecting signed contracts for commodities provided there
00:41has been no under-invoicing. So Indonesia publishing some more details on the regulation of these
00:48strategic commodity exports, but it appears that signed contracts will be exempt provided
00:53there has been no under-invoicing.
01:00Right, well, let's get a little bit more now with Radhika Rao, senior economist at DBS Bank.
01:05Radhika, Indonesian stocks not having a great time at the moment, the Indonesian economy more broadly
01:11struggling as well. Inflation's pretty high. This is obviously a large part driven by the conflict in
01:18the Middle East. What's your forecast for Indonesia the longer this conflict drags on?
01:25Hi, Paul. I think South Asia and Southeast Asia in general have really been grappling with the
01:30energy crisis at large. And you really don't have a very clear idea on how this is going to be
01:38resolved. And because of that, I think the domestic policies have had to keep a very, I would say,
01:43agile stance to try to, you know, ward off some of these risks. In that spirit, I think Indonesia as
01:49well, you know, has a difficult geopolitical global environment. And at the same time, domestic policies
01:55have also kind of fed through to the investor sentiment. Now for the stock markets, they've had
02:01a rough few months. We have had some index providers that are still to provide their, you know,
02:07the take on some of the key stocks. You know, I think that's been a longstanding thing. IDX,
02:13which is the, you know, the stock regulator have also taken some measures in terms of improving
02:20transparency and also providing more data on shareholders, and as well as pushing companies
02:26to, you know, make public more of that data. But I think all of this is coming together at the
02:31same
02:31time. And you've got, at least from the government's point of view, quite a few policy announcements
02:37especially just before this interview, you spoke about the export agency, the state export agency
02:42that is going to be taking over some of the, you know, commodity exports, key commodity exports
02:48from the businesses and kind of streamline the flow of documentation as well as money payment,
02:55payments as well. So I think we have to look at it from a broader context of a difficult
03:01global environment as well as domestic policy announcements that have been coming quick and fast.
03:07And I think kind of markets trying to make sense of it all.
03:11Do you feel the government taking control of key commodity exports like this is going to be a net
03:16positive or a net drag for the economy?
03:21I think the intention is firstly to, you know, June to August is going to be the transition period
03:28for this export agency, which is essentially now, I think the details as we speak are coming out,
03:33where you're going to see, you know, the businesses are probably having to go through
03:38documentation as well as the payments through these agencies. And I think in spirit, the agency
03:44hopes to kind of improve governance and see if there are any implementation issues and there is no
03:50under-invoicing, over-invoicing, as well as transfer pricing, you know, issues that could happen.
03:56I think in spirit, it seems to be doable. But of course, implementation issues will be very, very
04:02important, especially if, say, there are big trading houses on either side, looking at, you know,
04:08working with multiple, I would say, invoices. I think that is where one could see some issues.
04:14But certainly, I think the details will lie in the nuances. And I think having a transition period,
04:19perhaps, is the better way to go. Because from come September, this is going to get
04:23completely operationalised. So I think till then, any teething issues could be done. But in the
04:29broader context, certainly, you know, the state taking over the export proceeds kind of brings
04:36down the role of the corporate players. And I think that that's where there could be some amount
04:41of friction. Yeah, well, we're still waiting for some of those details, as you mentioned. But in the
04:47meantime, the country also grappling with very high inflation. We had that supersized rate increase
04:52from Bank of Indonesia at its last meeting. Where do you place the need that we're going to see the
04:57central bank acting strongly again at its next meeting? You know, if you see the 2013 and 2018,
05:06you know, cycles, Bank Indonesia tends to front load action, especially when there is, you know,
05:13currency depreciation pressures. And true to the word this time around as well, we have actually seen
05:18them already undertake 50 basis point hike, we do have a call for another 50 basis point in the second
05:24half of the year. Now looking at where the currency has done, I don't think, you know, they could even
05:30consider a front loading policy tightening. Apart from the central bank, there are also other actors.
05:36I mean, if you see this, this push by the government to, to, you know, make sure that the export
05:43proceeds
05:43are channeled back to the state bank, state-owned banks. Then you've got bond market interventions
05:49that's ongoing, then the state export agency as well. All of this kind of, I think the overall
05:54picture is that these are some of the tools that could be used to stem outflows and encourage inflows,
06:00especially dollar inflows. And same, Bank Indonesia has been hiking rates and also trying to raise
06:07short term, which what we call SRBI instrument returns on that as well. That's near 7% at this point,
06:13right, as compared to the policy rate, which is at, you know, closer to 5, 5.25%. So the idea
06:19is,
06:20you know, attract more inflows by keeping sufficient risk premium vis-a-vis the US
06:25treasuries. And you've got more foreign participation kind of makes up for the outflows
06:30you've seen in the equity market as well as the bond market. Coming back to your question on the rates,
06:35we do think that the central bank will continue to tighten policy as they've done in previous
06:42years. I think as far as the currency depreciation continues, I think the central bank will maintain
06:48a hawkish stance and hike rates. So we have at least a 50 basis point hike in the second half
06:53of the year with a risk that there could be more.
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