Policy Review: Terror Attacks Have Limited Impact on Investments

Tri Rismaharini, Mayor of Surabaya (in red hijab) had discussion with police official after Surabaya explosions, Sunday (13/5).

JAKARTA (TheInsiderStories)—The terrorist attacks may cause a short-term shock to the stock market, but it has limited impact on the long-term investments. The investors are more concerned with macroeconomic data and fundamental investment climate.

Indonesia, the world’s largest Muslim country, was hit by series of terrorist attacks recently. Last week, the terrorists at National Police’s Mobile Brigade took over the prison and killed five police officers. On Sunday (13/05) three suicidal bombs exploded in three churches in Surabaya.

Early on Monday, a bomb went off in an apartment in Sidoarjo, East Java. And then on Monday at 08.05 am, a bomb exploded at the front of the entrance gate of Surabaya police headquarter.

These terrorist attacks had dampened the mood of stock investors and sent the Jakarta Composite Index (JCI) lower by end of trading on Monday (14/5). The benchmark index closed down 0.16 per cent or minus 9.678 points at the level of 5,947.155 on May 14, 2018. Last week after the police prison riot, the Jakarta Composite Index closed up 0.83 per cent at 5956,832 on May 11, 2018.

However, Finance Minister Sri Mulyani Indrawati said that the government is confident the terror attacks will not affect the investors’ trust on Indonesia as the government has been taking all necessary security steps to deal with the terrorism. To anticipate the negative impact on investors, the government will keep pursuing efforts to ensure that the Indonesian economy is in a strong foundation.

Trade Minister Enggartiasto Lukito on Monday (14/05) also believed the terrorist attacks will not affect the trading activities and investors’ confidence in Indonesia.

The government’s confidence is in line with Indonesia’s experience on the terrorist attacks. Indonesia has a long list on the terrorist attacks, which had been so far amounted to a total 29 terror attacks from 2000 to the current suicidal bombs in Surabaya.

The worst incident was in the nightclubs in Bali that killed 202 people in 2002. Moreover, a car bomb once attacked the Indonesia Stock Exchange in September 2000 and killed 15 people.

The terrorist attack immediately shook the stock market but these have a meaningless impact on the long-term investment and overall economic performance. One specific case was a terrorist attack in Jakarta in 2016, the stock market was slightly shaken with the JCI being reportedly closed slightly down by 0.5 percent and the rupiah fell by 0.5 percent. But the terror has no impact on the realization of investment throughout 2016.

Investment Coordinating Board reported a 12.4 percent rise in the investment realization in 2016 to Rp612.8 trillion (US$43.77 billion) from Rp545.4 trillion in 2015. The increase was contributed by 20.4 percent rise in domestic direct investment at the total Rp216.2 trillion compared to Rp179.5 in the previous year.

The terror also has no impact on the foreign direct investment which recorded an 8.4 per cent rise to Rp386.4 trillion in 2016 from Rp365.9 trillion in 2015.

Indonesia targets the investment of Rp765 trillion this year. The agency reported, the investment realization reached Rp185.3 trillion in the first quarter of 2018, consisting of domestic direct investment of Rp76.4 trillion and foreign direct investment of Rp108.9 trillion.

TheInsiderStories views the investors give more concern on the macroeconomic data and fundamental investment climate rather than short-term security issues caused by the terror attacks. These include the debt to GDP ratio, the country’s high dependency on the commodities, permit simplification, business policy certainty, security, political stability, and infrastructure availability.

Indonesia has unsatisfied investment performance as it has poor Ease of Doing Business (EODB) index at 72nd rank out of 190 countries. Despite of achievement to jump from its previous rank of 91, this progress was still far from the President Joko Widodo’s ambition to reach EODB ranking at 40.

Although it brings no impacts to the long-term investment, Indonesian government must take a serious law enforcement against terrorism. If the government does not seriously handle the issue, it could shake investors’ confidence in the future.

US$1: Rp14,000

Email: fauzulmuna@theinsiderstories.com