Bloomberg Indonesia Cuts Rate to Spur Consumer Spending as Economy Slows

Indonesia Cuts Rate to Spur Consumer Spending as Economy Slows
2009-03-04 05:12:59.510 GMT

By Aloysius Unditu and Arijit Ghosh
March 4 (Bloomberg) -- Indonesia's central bank reduced its benchmark interest rate for a fourth straight month to help boost consumer spending as exports plummet.
Governor Boediono and his seven colleagues lowered the key rate to 7.75 percent from 8.25 percent, the central bank said in a statement in Jakarta today. The cut was expected by seven of 19 economists surveyed by Bloomberg News, with the other 12
forecasting a quarter-point reduction.

Indonesia is banking on local demand for homes, cars and motorcycles to sustain growth after exports plunged the most in 22 years in January. Merrill Lynch & Co. last week cut its 2009 growth forecast for Southeast Asia's largest economy to 3.6
percent, the weakest pace of expansion since 2001. ``We have to rely on domestic demand'' to boost growth, said Destry Damayanti, an economist at PT Mandiri Sekuritas in Jakarta. ``If we take a big cut, then expectations are higher'' that commercial lending rates will also decline, she said.

Private consumption, which accounts for about 70 percent of the $433 billion Indonesian economy, increased 4.8 percent in the final three months of 2008, the weakest pace of growth in six quarters. Car sales at the Indonesian unit of Toyota Motor Corp. and rivals fell 23 percent to 31,637 in January, the lowest in 15
months. Motorcycles sales plunged 22 percent in the month. Overseas shipments declined 35.5 percent in January to $7.15 billion from a year earlier, the Central Statistics Bureau said March 2. That's the biggest drop since 1986. Consumer prices rose 8.6 percent in February from a year earlier, the smallest increase in 11 months.

Slowing Inflation
Finance Minister Sri Mulyani Indrawati on March 2 said she expects consumer prices gains to slow every month until July. Bank Indonesia is targeting to keep inflation within 5 percent to 7 percent this year. Manufacturers in Japan, Indonesia's biggest export market, cut production by a record 10 percent in January, adding to evidence the economy is in its worst recession in 60 years. ``Our Japanese economist is now forecasting a sharp recession for the economy this year which means this downward
trend in Indonesian export growth is unlikely to reverse any time soon,'' Chan Kok Peng, chief economist at BNP Paribas Securities Asia in Singapore, said in a note on March 2. Policy makers across Asia are slashing borrowing costs and increasing government spending to help the region cope with the global economy's worst crisis since the Great Depression. Asia is almost twice as reliant on exports as the rest of the world. President Susilo Bambang Yudhoyono's government forecasts Indonesian economic growth this year of 4.5 percent, slowing from 2008's 6.1 percent pace of expansion.

To sustain growth, the government has proposed a 73.3 trillion rupiah ($6.1 billion) stimulus package. Indonesia last week sold $3 billion of dollar-denominated bonds to help finance its spending. ``The banking sector is not lending because they have a
perception that credit risk will increase,'' said Mandiri's Damayanti. The government and the central bank need to take a lead to encourage banks to lend, she said.

For Related News and Information:
Stories on interest rates: {BI IJ TCNI MMK }
Indonesia's economic data: {ECST ID }

Mandiri Sekuritas Key takeaways from our visit (UNTR, Rp5,000, Buy, TP: Rp7,800)

Here are some key takeaways from our visit to United Tractors (UNTR), yesterday:
1. Komatsu Japan allows UNTR to return some of its heavy equipment inventory at cost. This will help company’s working capital management.
2. Company renewed its contract with Kideco for ten years in Jan09. For FY09F, contract for mining contractors is secure as next contract expiry would be in 2010F on which amounting to 5.2mn tons of coal (about 8.8% of FY08 total production).
3. UNTR indicated that Feb09 coal extraction and coal production would be poor as weather remains unfriendly. However, management is still optimistic to catch up their annual target in second and third quarter.

Now trading at PER09F of 6.3x, we remain a buyer for UNTR as mining contracting would show steady performance with support of higher fee as stripping ratio to remain at 7.5x. Key risks to our valuation remain on unfriendly weather, price war among heavy equipment sellers, and coal price drops below cost of production (cash cost of
UNTR clients is US$35-40/ton on average).

Mandiri Sekuritas 2 investors are targeting Jeruk asset for some US$180mn (MEDC,

Company indicates that 2 investors are interested to acquire Jeruk asset for some US$180mn. Note that the company has previously taken out Jeruk asset from the remaining asset to be divested, considering its economic interest rather than working interest. The possible acquisition price is similar to company’s valuation on the particular asset, thus they may not book any gain from this transaction. We have not factored in
such action in our forecast, nor included the asset in MEDC’s overall 2P reserves. The company also mentioned that they may postpone the divestment plan of Rimau and Bawean blocks, which previously targeted to be carried out this year. MEDC is currently trading at EV/2P of US$2.6/boe. Note that we have not included Libya asset reserves in our calculation as well. Adding the reserves from Libya will result into lower EV/2P of US$1.8/boe.

Mandiri Sekuritas Auto Sector: Feb09 4-wheelers sales rebound month on month

According to Kontan, initial numbers shows that domestic car sales for February has rebounded, with some 34k units sold, up by 7% mom although 28% lower from year ago level, primarily due to sale of new variants of existing models and the public’s anticipation of further price increase, which have led to upfronting of demand. This brings 2M09 sales to 65,637 units, down by 26% yoy. The first two months sales represent about 14.6% of our FY09 estimates of 450k units, thus lagging behind at the moment. However, with BI rates expected to cut to 7.75% today, this would give added pressure for banks to cut on lending rates, which have remained constant despite a number of BI rate cuts (100 basis point cut year to date), should help financing affordability, thus, a potential for a demand uptick. We maintain Buy for Astra International (ASII, Rp10,800, Buy,TP: Rp17,900), which currently trades at PER09F 5.5x and P/BV 09 of 1.2x.

CNBC Oil Above $44, Eyes China Recovery, OPEC Cuts

By: Reuters | 04 Mar 2009 | 09:07 AM ET
U.S. crude oil futures jumped more than $2 above $44 per barrel on Wednesday, supported by better economic news from China and expectations by some traders that OPEC oil producers may further cut output.The main gauge of China's manufacturing sector, its purchasing managers' index (PMI), rose in February, suggesting the country could be on the brink of economic recovery.

US light, sweet crude [US@CL.1 43.42 1.77 (+4.25%)] for April delivery rose.

London Brent crude [GB@IB.1 45.44 1.74 (+3.98%)] rose.

China's PMI index rose for the third month in a row last month as factories restocked in anticipation of an early revival in the economy despite deepening global gloom elsewhere.

The figures were in stark contrast to data from the United States, which have suggested the economy of the world's biggest oil consumer is still contracting.

OPEC meets in Vienna on March 15 and needs to decide if it will further cut production or wait to see the impact of reductions in output that it has already implemented. The 12-member producer group has already promised to reduce oil output by 4.2 million barrels per day (bpd) from production levels in September and a Reuters survey suggests OPEC members have already met at least 81 percent of their promised cuts.

U.S. crude oil stockpiles dipped 463,000 barrels last week amid lower import levels and higher demand from refiners, the industry group American Petroleum Institute said on Tuesday.

The EIA will release its inventory report for last week later on Wednesday, and crude oil supplies are forecast to have risen 1.2 million barrels, according to a Reuters poll. more...