Investors Back SBY’s Bailout Defense

The Jakarta Globe
March 6, 2010

by Ardian Wibisono

Investors and business leaders on Friday welcomed President
Susilo Bambang Yudhoyono’s steadfast defense of Vice President
Boediono and Finance Minister Sri Mulyani Indrawati over the
Bank Century bailout, saying it should help improve confidence
in the government.

The president’s statement appeared to reassure investors that he
would not bow to political pressure to ditch Sri Mulyani and
Boediono, who are both seen as vital to the country’s reform
drive.

Several indicators reflected the positive reaction to
Yudhoyono’s speech. The benchmark Jakarta Composite Index rose
0.5 percent to 2,578.77 on Friday, and the country’s
credit-default swaps, a kind of insurance on bond defaults, fell
by 4.4 percent on Thursday night.

“The rising JCI and improvement in the credit-default swaps is
due to easing global economic worries and investor confidence in
taking more risk. However, the president’s speech also
contributed and created a positive reaction,” said Fauzi Ichsan,
an economist with Standard Chartered Bank. “The firm statement
should also signal to the real sector to start expanding their
businesses and end their wait-and-see approach.”

In a speech on Thursday night, Yudhoyono said the bailout not
only was meant to save the small, troubled bank but the
country’s entire banking system amid an escalating global
financial crisis.

He added that the move, taken in late 2008 by Sri Mulyani and
Boediono, then central bank governor, was legitimate.

Djimanto, secretary general of the Indonesian Employers
Association (Apindo), agreed that Yudhoyono’s statement eased
worries among some business leaders over the country’s political
outlook.

“With less worries on the political front, we can be more
focused on expanding our businesses,” he said.

However, the relationship between the government and the House
of Representatives might have been damaged by the inquiry, which
also saw the president’s governing coalition come under intense
strain.

“A looser relationship between the House and the government
would make it harder for the government to get approval from the
House for things like revising this year’s state budget,”
Djimanto said. “It would not impact overall economic growth but
it could delay government spending.”

Confidence in the government has fallen significantly since the
House inquiry into the Bank Century bailout began.

A survey by the state’s Danareksa Research Institute showed that
the Consumer Confidence in the Government Index had fallen from
118.9 points in August to 99.6 in January. A reading above 100
shows optimism. Anything below that level reflects pessimism. Read More...

Coming Soon to Indonesia's State Pawnshops: Gold Bars on a Payment Plan

State-owned pawnshop operator PT Perum Pegadaian said it plans
to start selling gold bars on installment plans in April to
reach customers who want to invest in the metal but lack the
necessary cash.

Wasis Djuhar, Pegadaian’s director of business development, said
on Friday that the new business will be run better than its
predecessor, a gold coin business that was closed in early 2000.

“The business is meant to provide a channel for people who want
to invest in gold but do not have enough cash. They can buy gold
through a down-payment and several installments,” Wasis said.

Wasis said the gold business will operate under the company’s
Shariah division and it will be available to customers at all
Pegadaian outlets.

Gold bars are currently sold in jewelry shops for around Rp
350,000 per gram. The bars, which can be bought in weights as
small as one gram, are a popular investment in Indonesia because
the precious metal is seen as being insulated from domestic
inflation.

“We are also considering expanding the gold business by
providing storage for customers who want their gold investments
kept safely,” Wasis added. “The potential is good because safety
is a significant issue when investing in gold.”

On Thursday, Chandra Purnama, president director of Pegadaian,
said that the company has been looking for new ways to expand
its business because it was unlikely to be able to resume its
stock pawning service.

He said a regulation prohibited the company from accepting
securities such as stocks and bonds as collateral for loans.

Pegadaian started the stock pawning service in July 2007 but it
was halted in November 2008 due to the global financial crisis.

The total value of securities pawned at Pegadaian at one point
reached Rp 500 billion ($54 million) but dropped to Rp 75
billion when the service was halted temporarily.

“When we earlier planned to re-open the service this year, we
wanted to expand the service by including bonds and US dollar
bank notes,” Chandra said. “However it turns out that there is a
regulation that prohibits us from taking securities as
collateral, so it seems we are not going to provide the service
again. But we are still going to open the dollar service since
it is not a security.”

Under the dollar service, people can keep use their greenbacks
as collateral to borrow rupiah notes.

Pegadaian plans to expand its lending from Rp 49 trillion last
year to Rp 75 trillion this year. If the company reaches that
mark, the company’s gross profit would rise to Rp 1.45 trillion
from Rp 1.2 trillion in 2009 Read More...