After market participants had time in the weekend to think over the 'rescue packages' of the Indonesian government and central bank (Bank Indonesia) that were released on Friday (23/08), they seemed unconvinced about the short-term impact of the packages. As a result, Indonesia's main stock index (IHSG) fell 1.18 percent to 4,120.67 points on Monday (26/08), which is the IHSG's lowest level since 7 September 2012. The Indonesian rupiah gained 0.06 percent to IDR 10,841 (Bank Indonesia's mid rate).
Although analysts assess that the content of the packages are good on the middle and longer term, it will not make a difference on the short term, while market players are currently more interested in solutions that can fix the weakening rupiah immediately.
The packages aim to improve Indonesia's financial sector while restoring confidence in its fundamentals as turmoil emerged on Indonesia's stock exchange, bonds market and the rupiah due to the country's USD $9.8 billion current-account deficit, high inflation (8.61 percent year on year) and the possible ending of the Federal Reserve's quantitative easing program, which has helped to keep U.S. interest rates near record lows and made more money available for lending. Part of these funds went to lucrative assets in emerging markets, such as Indonesia. Now, however, the money is flowing back to the West, away from the inflated assets.
In August, the IHSG has lost almost 11 percent of its value. This has subsequently resulted in the decision of Sinarmas Land’s Puradelta Lestari, an industrial estate developer, to postpone its USD $191 million initial public offering (IPO) this month. Another company that is expected to conduct its IPO in August, Siloam International Hospitals (an unit of Lippo Karawaci), cut the size of its planned IPO by almost 40 percent.