JAKARTA (TheInsiderStories) – Indonesia’ economy may face some difficulties this year. Inflation, State Budget, and even investment are some of the issues that government must put attention on.

Institute for Development of Economics and Finance (INDEF) predicted that inflation will not move on track this year. It predicts that inflation can reach 4 percent, higher than government expectation at 3.5 percent.

Senior Economist of INDEF, Aviliani rated, the inflation is relatively stable in a short-term, as commodity is in rational price. But it may hike following presidential election.

But the central bank projected an under-control inflation this year. Bank Indonesia’ Governor Perry Warjiyo doesn’t see any excessive risk on food price which can give pressure to inflation. Moreover, coordination between the central and regional government in maintaining food commodity price goes well, he said.

Ahead of election, there are also some downside risks to Indonesian economy. Government may act policy shifting to the populist one, for gaining voters. And if there will be state’ leader change, the policy may also be shifted. This will lead to reviews of several infrastructure projects, foreign cooperation, also subsidy and tax policy.

INDEF projected a still low financial sector role in 2019, as Indonesia’ Credit to Gross Domestic Product (GDP) ratio is also below peers. Aviliani noted, that Indonesia’ credit to GDP ratio is only at 39.4 percent. While, Thailand, Singapore, and Malaysia’s ratios are more than 100 percent. Even Philippines is higher than Indonesia at 44.7 percent.

Other than that, 10 retail bond issuances in 2019 can threaten liquidity. These securities issuances could trigger a fight over public funds between banks and government.

Compared to term deposit, government bond has higher interest rate and lower tax. Aviliani suggested that there must be an agreement between government and banks, so the struggle of getting public funds will not occur their businesses.

This year, government aims to issue Rp60 trillion retail bonds. There will be 10 offerings total, consist of 4 retail savings bond SBR006, SBR007, SBR008 after the recent SBR005. Then, 4 savings sukuk ST003, ST004, ST005, and ST006 will be issued later. Moreover, there will be 1 retail state bond ORI016 and 1 retail SUKUK SR011.

Last year, Indonesia didn’t seem to attract foreign investment much. Foreign capital investment realization decreased by 11.6 percent from Rp430.5 trillion to Rp392.7 trillion (US$27.85 billion). The realization was only 82.3 percent of the commitment.

On opposite, domestic investment jumped 28.6 percent to Rp328.6 trillion. The realization is even 114.3 percent higher than the commitment.

If government cannot maintain economic growth and other macroeconomy data, foreign investors may think twice to spend their capital in Indonesia. Moreover, there are still high global uncertainties ahead, amid US-China trade war.

While, institutional investors (investment managers, insurance, pension funds) are more concerned about global economic conditions than domestic political factors ahead of the upcoming presidential and legislative elections in April 2019. This was revealed in the results of a survey of 172 institutional investors who managed funds of more than Rp500 trillion.

According to Damhuri Nasution, Katadata Insight Center (KIC) Expert Panel, most of the institutional investors are optimistic about the current condition of the Indonesian economy and financial market. Although tend to be optimistic about the economic conditions and financial markets, global economic factors are indeed the main concern of investors, he added.

The investors worried because the global economic conditions showed a slowing trend as the spread of the United States (US) – China trade war and the normalization of US monetary policy.

Wahyu Prasetyawan, another KIC Expert Panel, added that despite facing the presidential election, political factors were not too worried by investors as well as global economic conditions.

With confidence in domestic political and economic stability, investors also have high optimism about the prospects of financial markets in Indonesia. The proof is that most investors (84.3 percent) expect the Jakarta Composite Index (JCI) to increase in the next three months.

He continued, from the optimistic investors, half of them believed the JCI would rise by more than 3 percent. Only 15.7 percent expect the stock index to drop. Investors also believe that stocks are the most attractive investment portfolio rather than bonds and money markets, especially for investment and insurance managers.

Therefore, Prasetyawan stated, as many as 14.7 percent of investors will maintain the proportion of their stock portfolio as before. Meanwhile, as many as 37.8 percent of respondents will actually enlarge the share investment in the next three months. Those who intend to reduce share investment are only 14.5 percent of investors.

Meanwhile, another speaker Burhanuddin Muhtadi, Director of Indonesian Political Indicators, stressed the domestic political situation ahead of the presidential election tended to be stable. The wide electability difference between the two candidates is around 17-20 percent, believed to influence investor optimism with the Indonesian money market and economy.

Historically, he said, in the 2014 presidential election, the electability difference between the two candidates was only 1-3 percent and the economic market conditions tended to be stable. Even though the political chaotic opportunities are large because of the thinness of the electability gap.

Moreover, the 2019 presidential election, the difference is large, political stability is under control. So it doesn’t have an impact on economic activities, he explained.

US$1: Rp14,100

by Lexy Nantu and TIS Intelligence Team