From http://yosef-ardi.blogspot.com/2006/05/market-crash-hot-money-our-choices.html

Saturday, May 20, 2006

Market crash, hot money & our choices

I'm worried of my fellow journalist's too-much attention on writing articles about the movement of stock market index. More often we see the headlines like this...New record high for stock market index...while so little attention on how much people have been kicked out of job market.
We, the media, keep telling wrong direction to people about the economy...we're too bussy discusing world oil price, the fall of Dow Jones, the rise of The Fed rates...so when the Jakarta Composite Index lost more than 10% in only one week, we're bussy to ask comments from the ministers about what's going on...and then we get the same old answers like this...it's just a temporary shock, it's just the impact of Dow Jones etc...The sad thing is that we know exactly what's wrong with the economy, and what should we do, but we do the opposite instead. And the media missed the question: Do the government make the right decisions?

I'm not saying that stock market index is not important. There are 336 companies listed at Jakarta Stock Exchange (JSX)with market capitalization of more than US$100 billion, but there are only slightly above 1 million people work in these companies. I just can't understand that with daily trading of less than US$200 million of shares, we should miss the big picture of investment. We have to remember that average floating stocks of listed companies is below 20%. It's true that capital market crash would make listed companies difficult to raise funding for investment.
But even if the index jump by 100% per year, we can't expect the 336 companies and another hundreds of companies issuing bonds to create enough jobs and boost export to a level that strong enough to keep the economy healthy and grow faster.
In fact, last year when Jakarta Composite Index (JCI) grew 17%, second best in Asia behind Japan's Nikkei, the new jobs created by listed companies grew by less than 1%. More than half of listed companies cut number of employees for the sake of efficienty and sexier stock price.
We desperately needs new direct investments, domestic or foreign (FDI). In fact, government (president, VP, and ministers) had conducted countless roadshows and state visits to potential investors overseas to lure them in. We got so many promises. China promised and in fact signed MoUs to invest US$7 billion, another US$6 billion from Middle East, billions from Japan, South Korea, London major even promised UK's new investment of US$1 billion, Iran with US$3.5 billion, and just recently I posted the possibility of US auto giant to invest US$1.4 billion.
But so far, these investment commitments are just too good to be true. If we look at Central Bank's statistics of net foreign flow of capital, the numbers are well below that. In four quarters last year, only Q2 recorded unusual big amount of net FDI at US$2.17 billion. I'm not sure what was the reason as the other quarters were completely different. Q1 with net of US$393 million, Q3 net US$56 million, and Q4 of net outflow of US$366 million. Still, thanks to the Q2, the whole year was ended with a total of more than US$2 billio, doubled the year earlier. But still, it's not enough to create enough jobs.
We also know why the gap between commitments and realities is so wide. Rampant red tape and corruption, hefty bureaucrazy, poor infrastructure, legal uncertainty, and long-list of problems. We, and especially our scholars, experts, and well-educated ministers, know exactly what to do. But we don't make decisions. Worse, we, most of the time, take the opposites or careless on opportunities right in front of us such as the underspent budget and the reluctance of SOEs to implement their investment budget for being afraid of legal prosecution.
Government wanted to buyback Indosat shares from Temasek (at crazy high price), looking for loans to buyback Semen Gresik shares, or buy additional shares in Freeport Indonesia. I'm not saying such buybacks have no financial grounds because these companies are making profit and government would get bigger dividend with more shares in hand, right? May be I'm wrong, but I have two concerns:
First, we will give out US$2.6 billion (experts: capital outflow). Let say we get back 49% shares of Indosat at US$1.2 billion. The company may give out dividend of US$100 million a year, government will get additional US$49 million per year. It takes decades to payback the buyback investment. In the case of Freeport, I believe the issue at stake is not the amount of shares per se, but more importantly is a better revenue sharing scheme, stronger supervision and audit measures (really mean this) and fairer share of benefits for Papuans.
Second, buybacks will not create new jobs or increase capital expenditures. With more shares in hands, in the event of commodity price crash, investment would be a hell of pain. Even in good times like this time around, more shares in hands have nothing to do with more investment to come.
I wonder if our experts (with paychecks from SOEs, sometimes way too much) really did the math when they give suggestions to decision makers. But I do worry these experts are too busy counting their own steps to a higher position.
Government, in my view, should pay more attention on pushing investment commitments into reality and spending the budget properly to create more jobs and earn more foreign exchange from export activities for the economy to grow healthier.
Even if you hate so much the foreigners like Cemex, Temasek or Freeport, the least you should do is to have your fellow citizens to invest here, if that's what the natinalism sentiment is all about. But if local business people are also uncomfortable, can the state, including the SOEs provide enough jobs and create demand that push higher the economic growth?
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