Election jitters stall Indonesia's
economy By Tony Sitathan
SINGAPORE - There seems to be an air of
apprehension in Indonesia, particularly with the coming
of presidential elections slated for July 5. This period
of political uncertainty has ruffled the feathers of
businessmen and investors at large, causing major
infrastructure projects to be put on hold and leading to
a weakening of the country's currency.
"Call it
pre-election blues or catching a bad case of the cold.
One just hopes the pre-election fever does not become an
uncontrolled epidemic with far reaching consequences to
the recovery of the economy," commented Andi Modokompit,
an economics professor at the University of Indonesia.
The recent attack on the Indonesian rupiah has
hit certain sectors hard, particularly the electronics
industry, which contributes more than 12% to the
country's gross domestic product (GDP). According to
estimates from the Ministry of Industry and Trade, sales
of electronics in Indonesia hit about US$2.22 billion in
2003 and are expected to expand to more than $3.05
billion in 2005. That figure has looked increasingly
optimistic, however, since the rupiah sharply
depreciated against the US dollar.
The US
greenback has already gained by almost 11% in value
compared to the rupiah. This has made foreign imports of
both active and passive components more expensive. This
has also made manufacturing much more expensive and less
competitive compared to manufacturing done in other
Asian countries.
According to Alvin Lim, a plant
manager for a contract manufacturer in Indonesia that
supplies original equipment manufacturer products to
Japanese electronic companies, it is getting more
expensive to import raw materials, such as certain
chemical by-products and resins that are used for
constructing the plastic bodies of electronic consumable
items. "This is causing a great deal of concern to local
manufacturers who are complaining of having to pay more
money for imported raw materials. As a result, companies
are starting desperately to buy US dollars and shore up
their foreign reserves," said Lim.
The
Indonesian central bank is equally concerned that
state-run companies are profiteering from currency
hedging. Election uncertainly has also prompted
investors to switch to dollars and hedge against risk,
while at the same time protecting the rupiah against
currency speculators.
The costly mistake of the
1997 election still echoes in the mind of S Tanudjaja,
an investment analyst with Mandiri Securities based in
Jakarta. "The spillover effects caused by the
presidential elections are very real. Several blue chip
companies, like Samsung and Matsushita, have already
started to hedge against the falling rupiah. Also, local
companies like Astra International [an auto maker] and
Indofood [a food manufacturer] that rely on imports as
well as exports, have learnt well the meltdown of the
rupiah back in 1997 and 1998," said Tanudjaja. That
meltdown was part of the 1997 Asian financial crisis
from which Indonesia is still recovering.
Of
greater concern recently is the fall of widely traded
shares in the stock market. The Jakarta Stock Exchange
Composite Index fell by 2.9%, or 21.105 points, to
697.937, slightly higher than its intra-day low of
689.536, two weeks ago. Several traders said that
foreign investors sold shares heavily after the rupiah
tumbled against the greenback.
In the island
city of Batam, considered the industrial and electronics
heartland of Indonesia, exporting more than 40% of
Indonesia's completed electronics products as well as
electronic components including computer parts and
memory upgrades, the presidential elections have been
viewed more negatively than positively.
Although
the full brunt of presidential electioneering has not
been felt in Batam, with a population of less than 1.4
million residents, according to Jonathan Crow, a senior
production manager working in Batam for a German-based
engineering company, the opportunities seem a lot less
clear. Crow said his company's subsidiaries in other
parts of Indonesia have been forced to evaluate their
supply chain.
"The political debate seems to
have enveloped business development at least for the
time being. So companies are beginning to take a cynical
view of ploughing back more investment dollars into
their sales business cycle," he said.
Indonesia's net foreign direct investment (FDI)
inflows have been negative since 1998, although a
recovery trend was discerned after they hit $4.5 billion
in 2000. After a spike in October, FDI approvals for the
year to October almost equaled the total amount
registered last year, to reflect $12.4 billion. This was
expected to return to a positive net FDI inflow by the
end of 2004. However, that notion for the time being
appears highly unlikely as the upcoming elections have
made foreign investors cautious about spending on
multimillion-dollar projects.
Investment aside,
the political landscape has also been clouded by
Indonesia's latest move to expel the International
Crisis Group's Southeast Asia director Sidney Jones and
analyst Francesca Lawe-Davies, seen in many quarters as
a return to the New Order days of former president
Suharto.
According to Dana Robert Dillon, a
senior policy analyst with specialist knowledge on
military strategy, national security and Southeast Asia
from the Heritage Foundation, a research and educational
institute based in Washington DC, the expulsion was not
warranted and represents another black mark on
Indonesia's record of supporting a free press.
"Writing reports is not interfering in the
internal affairs of Indonesia, it is expressing an
opinion. And expressing an informed opinion is not
interference," said Dillon, referring to the reason for
Jones' expulsion. "If the BIN [Badan Intelijen Negara,
Indonesia's state intelligence agency] believed her
reports were inaccurate they could have issued a
correction to her reports, substantiating their opinions
with evidence, to my knowledge that has not been done
and her expulsion leads one to believe that Sidney was
correct and the government of Indonesia is covering up,"
Dillon added during an interview with Asia Times Online.
However, he maintained that the biggest
repercussion to Indonesia, at least for the short term,
was an increase in the steady flow of condemnation from
the world community. Several countries, including the
United Kingdom, the United States and Canada have issued
warnings for their citizens visiting or currently
staying in the country. These nations have also advised
against traveling to Indonesia in light of heightened
terrorist attacks by organizations similar to those
carrying out attacks in Iraq and Saudi Arabia.
Kenneth James, a test engineer in the assembly
industry who had the option to relocate to Indonesia
from the UK, decided against moving for the time being.
"It's better to be safe than sorry, especially with all
the high-risk terrorist threats that seems to be aimed
at UK citizens after the Iraqi war and the fall of
Saddam Hussein. Its simply not worth the risk," he said.
Much depends on who takes over the reigns of
government after next week's elections. Of the five
remaining candidates, former Indonesian general and
security minister, Susilo Bambang Yudhoyono, is leading
the opinion polls. His rivals are the current President
Megawati Sukarnoputri; former general Wiranto of the
Golkar party; Amien Rais, head of the country's
legislature; and Megawati's vice president, Hamzah Haz.
Anything less than a majority win for any of the
candidates could spell some kind of disturbance among
voters.
Still, the mood in Indonesia does seem
brighter than before. If the election results are not
tainted by violence or terrorist threats, things could
pick up quickly, and the current hesitancy will turn
into action.
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