[Kabar-indonesia] Business sentiment up on lower rates hope; Industrial growth expected to pick up

[Joyo at aol.com]

also: Industrial growth expected to pick up in second half

The Jakarta Post 
Saturday, August 5, 2006

Business sentiment up on lower rates hope

The Jakarta Post, Jakarta

The Business Sentiment Index (BSI) edged higher by 0.4 percent in the 
April-May period to 114.5 as hopes of lower interest rates increased.

Both components of the BSI saw gains: the Present Situations Index (PSI), 
which measures sentiment as regards current conditions, increased 0.2 percent to 
107.8, while the Expectations Index (EI) climbed 0.6 percent to 121.3.

According to the survey, which was conducted by the Jakarta-based Dana 
Research Institute (DRI), only 24.8 percent of CEOs now expect lending rates to 
increase compared to 26.7 percent in the previous survey. It is hoped that a 
series of interest rate cuts in the second half of the year will provide a 
much-needed fillip to the Indonesian economy, which has slowed down significantly in 
the wake of last October's fuel price hikes.

The contention that expectations of lower rates were behind the improvement 
in business sentiment is borne out in the breakdown of the survey's findings by 
business sector.

Of the eight business sectors covered by the survey, business sentiment 
improved the most in the construction sector (up 2.6 percent to 114.9) and the 
financial sector (up 1.6 percent to 129.4) -- two sectors whose fortunes are 
strongly linked to the level of interest rates.

Besides hopes of lower rates, another key finding of the survey was that cost 
pressures, while still high, at last appear to be moderating.

This is significant as high cost pressures have been weighing on much of 
corporate Indonesia for some time now, especially given that fuel prices rose last 
year by 20 percent on average in March, and then again by 126 percent on 
average in October.

CEOs also believe that inflationary pressures are continuing to ease. 
Sentiment about inflation fell by 2.0 percent to 126.5, or way down from its peak of 
134.6 immediately after fuel prices went up in October last year.

Indeed, this figure is now at its lowest level since October 2005. Easing 
inflationary pressure, which is reflected in lower cost pressure, is good news 
for corporate fundamentals, suggesting better profitability ahead due to higher 
sales volumes.

Meanwhile, business confidence in the government was unchanged in the latest 
survey at 95.5. Encouragingly, though, with higher expectations of interest 
rate cuts, CEOs remain sanguine about the government's ability to improve market 
conditions. This component of the business confidence in the government index 
increased 0.2 percent to 109.6. 

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The Jakarta Post 
Saturday, August 5, 2006

Industrial growth expected to pick up in second half

Although the country's industrial sector is likely to grow at less than the 
pace predicted by the government this year, Vice President Jusuf Kalla believes 
there are clear signs that industrial output will pick up during the second 
semester.

"A planned and gradual decline in interest rates to single-digit levels will 
result in consumption and production levels rising back to normal again," said 
Kalla after Friday prayers.

He said that the government and Bank Indonesia had agreed on monthly 
interest-rate cuts in order to spur growth in the real sector.

Industry Minister Fahmi Idris said Wednesday that the government's industrial 
output growth target for this year would be reduced downward due primarily to 
unabated rampant smuggling and declining purchasing power.

The government had predicted growth of 7.7 percent in the country's 
industrial sector for this year, up from less than 6 percent last year, on optimism 
that the economy was set to rebound from last year's downturn.

According to the Industry Ministry, the industrial sector grew by an average 
pace of 2.83 percent during the first quarter, down from 7.53 percent in the 
same period last year.

Kalla cited high interest rates as the main cause of the sluggish growth in 
the industrial sector, with such problems as labor and security uncertainties 
no longer playing a major role.

Optimism that the industrial sector would grow at a faster pace during the 
second semester was also being fueled by the fact the tenders for a number of 
major government-sponsored infrastructure projects had been completed.

"These infrastructure projects, such as turnpike and public housing schemes, 
will commence this semester. I think that demand for raw materials, cement and 
steel will increase starting next month," said Kalla, whose family-owned 
business is a major player in the infrastructure sector. 

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Joyo Indonesia News Service
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