Economic Flash
_________________________________________________________________________________________________________________________Danamon Economic & Market Research
Analyst Meeting with Finance Minister
Helmi Arman
Economist / Bond Strategist helmi.arman@danamon.co.id
Anton Gunawan
Chief Economist
anton.gunawan@danamon.co.id
Anton Hendranatta
Statistician
Anton.hendranatta@danamon.co.id
Please see the important disclaimer and information on the back of this report.
The fuel price hike is forthcoming…
•
The Finance Minister yesterday invited analysts and elaborated on
plans to reduce budget pressures.
•
The government is planning a number of energy efficiency and
spending reduction measures. But having the most significant impact
would be the fuel price hike.
•
The magnitude of forthcoming fuel price adjustments will likely be at
the upper-end of the 20%-30% range being considered.
Implementation will be in 2 to 3 weeks; i.e. once the government
finishes gathering data on the 19.1mn low-income households
targeted for direct cash subsidies.
•
According to the minister, the fuel price hikes will be able to rein in
the budget deficit to around 1.8% of GDP this year (from 2.1%),
assuming oil prices (Indonesian Crude) average $100/bl.
•
However when the adjustments occur, monthly inflation could spike
by 2.7%. The year on year figure would rise to nearly 12.0%
although it would moderate in the following months. Meanwhile the
SBI rate is predicted to rise to 8.5% (government estimates).
•
Proposed quantity restrictions on subsidized fuel (the so-called smart
card program) is still set to go on for the longer term. The proposal
is expected to reduce the subsidy burden for 2009.
Market implications: Positive, for the near term
•
The fuel price hike will free up slack in the government budget, and
may provide positive sentiment for the bond market in the near
term.
•
However we refrain from anticipating a 2005-style rally just yet.
Without any automatic fuel subsidy cap being introduced, the slack
that the fuel price hike will free-up could diminish rapidly if oil prices
continue rising.
•
Based on our rough estimates, concerns may re-emerge if average
oil prices rise substantially above US$125 this year; i.e. if light sweet
crude reaches US$140 and doesn’t come down.
•
The 2009 inflation outlook also appears to be overshadowed by
uncertainty. Implementation of quantity restrictions on subsidized
fuel may put upward pressure on the consumer price index next
year.
Danamon Economic & Market Research
2
ANALYST CERTIFICATIONI, Helmi Arman, hereby certify that all of the views expressed in this research report accurately reflect my personal views about any and all of the subject issuer(s) or securities. We also certify that no part of my compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or views in this report.
DISCLAIMER
The information contained in this report has been taken from sources which we deem reliable. However, none of P.T. Bank Danamon and/or its affiliated companies and/or their respective employees and/or agents makes any representation or warranty (express or implied) or accepts any responsibility or liability as to, or in relation to, the accuracy or completeness of the information and opinions contained in this report or as to any information contained in this report or any other such information or opinions remaining unchanged after the issue thereof. We expressly disclaim any responsibility or liability (express or implied) of P.T. Bank Danamon, its affiliated companies and their respective employees and agents whatsoever and howsoever arising (including, without limitation for any claims, proceedings, action , suits, losses, expenses, damages or costs) which may be brought against or suffered by any person as a result of acting in reliance upon the whole or any part of the contents of this report and neither P.T. Bank Danamon, its affiliated companies or their respective employees or agents accepts liability for any errors, omissions or mis-statements, negligent or otherwise, in the report and any liability in respect of the report or any inaccuracy therein or omission there from which might otherwise arise is hereby expressly disclaimed. The information contained in this report is not be taken as any recommendation made by P.T. Bank Danamon or any other person to enter into any agreement with regard to any investment mentioned in this document. This report is prepared for general circulation. It does not have regards to the specific person who may receive this report. In considering any investments you should make your own independent assessment and seek your own professional financial and legal advice.
Economic and Market Research
Anton H. Gunawan
Chief Economist
+62 21 5799-1466
anton.gunawan@danamon.co.id
Helmi Arman
Economist / Bond Strategist
+62 21 5799-1001
helmi.arman@danamon.co.id
ext.
1128
Anton Hendranata
Economist / Modeling
+62 21 5799-1001
anton.hendranata@danamon.co.id
ext.
1128
PT Bank Danamon, Tbk.
Menara Bank Danamon, 8th Floor
Jalan Prof. Dr. Satrio Kav. E IV #6
Mega Kuningan, Jakarta 12950
INDONESIA
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