Indonesia to reopen battered stock market
Updated
Indonesia will reopen its stock market on Friday, two days after being suspended following a more than 20 per cent slump earlier in the week.
Finance Minister Sri Mulyani says the government will take measures to protect the domestic economy when the market reopens, and is threatening legal action against anybody suspected of breaking the rules.
Presenter: Claudette Werden
Speakers : Fauzi Ichsan, Senior Economist at Standard Chartered Bank Indonesia
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ICHSAN: The Indonesian Stock Exchange is quite dominated by commodity based companies and as you are aware, commodity prices over the last few months have tanked and that has certainly affected share prices of commodity companies. Secondly there has been rumours that these shares have been pledged for collateral and expansion and those shares were pledged on the basis that if those shares come down below a certain level, then the creditors have the right to sell those shares and that is what has happened. We believe the Capital Markets Authority is trying to investigate into the issue of pledge shares because if creditors continue to sell shares of those companies which are being pledged then the equity market will be hammered further.
WERDEN: Is Indonesia facing recession?
ICHSAN: The Indonesian economy is likely to be affected by the global crisis in the second half of this year but I don't believe Indonesia will plunge into a recession for the simple reason that the pillars that support the Indonesian economy are domestic consumption and domestic investment. Consumer spending generates around 60 per cent of GDP, domestic consumption generates about 70 per cent of GDP, net exports that is to say exports minus imports only generate 8 per cent of GDP and thus global economic slowdown will hit exports but since the role of exports in generating growth is limited, therefore the impact on Indonesia will also be limited.
WERDEN: In the region who is most in danger to succumbing to this crisis?
ICHSAN: One could say there are three countries who would be less affected by the global economic slowdown in Asia, China, India and Indonesia mainly because of population, domestic market story while those smaller countries in Asia that have more export dependence on the US and the rest of the world will be hit more, so I would say Hong Kong, Singapore, Taiwan, these countries will be hit more?
WERDEN: And Japan?
ICHSAN: Japan would be hit certainly, but the rest of Asia considers Japan a first world country anyway so even though Japan enters into a major economic slowdown the impact is not as severe as in an emerging market country.
