A collective sigh of relief was felt across global markets after Alexis Tsipras, Greece’s new prime minister after his left-wing Syriza party won the legislative election (with 36.3% of the vote), said that he is open to negotiations with European leaders to discuss Greece’s debt situation. This statement was important as it reduces chances that Greece will exit the Eurozone and thus jeopardizing the future financial unity of the region. Although such negotiations will be difficult (and could eventually fail) it is expected that both sides will try their best to avoid the worst-case scenario (which would be a Greek exit and/or a default).

In combination with the quantitative easing program that was announced by the European Central Bank (ECB) last week, it raised investors’ appetite for emerging market assets, including Indonesian assets. The ECB announced to implement a 60 million euro per month bond-buying program up to September 2016 in an attempt to boost the region’s inflation rate. This QE program, which comes shortly after the US Federal Reserve ended theirs in late-2014, will increase global liquidity and is expected to see some spill overs to emerging markets as investors seek attractive (yet riskier) yields.

On Tuesday (27/01), foreign investors posted net buying worth IDR 647.5 billion (USD $52 million). In the coming days and weeks, most Indonesian listed companies will release their corporate earnings reports covering full year 2014. Investors expect that these results are positive.

Corruption Eradication Commission (KPK) versus the National Police

However, the positive performance of Indonesian stocks and the rupiah was limited as there are concerns about domestic political stability. Tensions between the Corruption Eradication Commission (KPK), the country’s corruption watchdog, and the National Police intensified after the KPK charged Police General Budi Gunawan as a bribery suspect in the second week of 2015 as, reportedly, about IDR 54 billion (USD $4.3 million) in undeclared funds had passed through his bank accounts. What made this case particularly sensitive is that Gunawan was in fact President Joko Widodo’s sole candidate for filling the position of the country's National Police Chief (the inauguration of Gunawan has now been delayed but most likely will be cancelled altogether). Not long after the KPK’s allegation, Indonesia’s National Police charged Bambang Widjojanto, a Deputy Chairman of the KPK, for allegedly making false testimonies in a court case he represented as a defense lawyer approximately five years ago (before he joined the KPK). Then, two more KPK deputies - Adnan Pandu Praja and Zulkarnain - were reported to the police on allegations of involvement in corruption. Meanwhile, pictures of KPK Chairman Abraham Samad surfaced on the Internet which show him having an affair with Miss Indonesia Elvira Devinamira Wirayanti (although the authenticity of these photographs remain unclear).

Indonesian President Joko Widodo chose to stay neutral in the above-mentioned matters, a decision which led to some public outcry as without strong presidential intervention it is expected that KPK officials will remain under attack. In 2009 and 2011 similar scenarios occurred after the KPK named high police officials as suspects in extortion cases. National Police made their revenge by charging officials of the KPK.

Revised Government Targets for Economic Growth and the Rupiah in 2015

On Tuesday morning it was reported that the Indonesian government and Commission XI of the country’s House of Representatives (DPR) agreed to lower the economic growth assumption in the 2015 State Budget from 5.8 percent (y/y) to 5.7 percent (y/y), mainly due to current global economic conditions and the decline in global commodity prices (impacting negatively on Indonesia’s export performance). The average targeted rupiah rate in 2015 was revised from IDR 12,200 per US dollar in the original 2015 State Budget to IDR 12,500 in the revised edition, meaning that the authorities expect a much weaker-than-estimated currency ahead of looming higher US interest rates (which cause a bullish US dollar). Indonesian Finance Minister Bambang Brodjonegoro said that the level of IDR 12,500 supports the country’s exports (in terms of competitiveness) and helps to narrow Indonesia’s current-account deficit which is still at an unsustainable level of about 3 percent of GDP and which makes the country vulnerable to capital outflows in times of global shocks as it indicates that Indonesia depends on foreign funding.

Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.19 percent to IDR 12,493 per US dollar on Tuesday (27/01).

| Source: Bank Indonesia