Faisal Basri’s Blog

Saturday, October 11, 2008 11:01 PM

The Jakarta Post ,  Jakarta   |  Sat, 10/11/2008 9:11 PM  |  Business

Analysts have advised the government to stop addressing the public with rhetoric and scaring investors by summoning the police and prosecutors to help stabilize the stock market.

Economist Faisal Basri said the president had so far made normative statements on how the government would address a possible contagion of liquidity crisis and a weakening global demand for Indonesian products.

“The way I see it, the government should respond through actions not words. If the president wants to make a statement, it should be measurable and not normative,” Faisal told The Jakarta Post on Saturday.

He said the government also fueled panic after making a last minute call to extend the suspension to the stock exchange after stating it would resume trading on Friday. Some investors have complained that the extension undermined their right to protect their assets and that it might ignite a rush should the market resumes on Monday.

The Indonesian Stock Exchange (IDX) has suspended trading since 11.06 a.m. Wednesday after its main index tumbled by 21 percent in mere three days, the biggest decline in Asian markets.

“The public will not be panicking if the government’s actions are measurable,” Faisal said

On Friday noon, Finance Minister Sri Mulyani Indrawati pleaded the public to perceive the extension as a measure to protect investors from deeper pain. However, later in the afternoon, she addressed the media while flanked by the National Police chief and Attorney General, threatening to nab anyone trying to damage the financial market by spreading rumors.

Earlier that day, the Capital Market and Financial Institution Supervisory Agency summoned brokers and financial firms allegedly responsible for spreading false information on the financial condition of several listed companies and local securities.

Hendri Saparini, an economist from a group of think tank that often found itself in opposition to the government — Econit, said the government had pumped the market with more fear.

“The government has responded with panic policies on things that should have been addressed earlier. Indonesia’s economic bubble is actually already in sight since last year. It is now too late to create a soft (economic growth) landing,” she said.

She advised the government to swallow the fact that many people saw it panicking and to end all rhetoric and focus on implementation of necessary measures to calm the market.

“The government should be discreet, calm the market with policy implementation,” she said.

Measures currently being developed by the government and the central bank include: cutting bank’s minimum reserve requirement to encourage lending, ordering state companies to buy back shares to curb pressure on the stock market and extending guarantee on bank deposits to boost people’s confidence on the banking sector.

Banker-cum-economist Fauzi Ikhsan said panicking was a global phenomenon.

“Governments, everywhere, are free to make statements. Whether the message gets heard is entirely left to the market. More important is the policy and how fast it can be implemented,” Fauzi said.

He said the global liquidity squeeze, so far, had affected financial market, but would slowly trickle to the real sector. The government, he said, must focus on strengthening the real sector.

“My suggestion is to rethink the effectiveness of the government’s fiscal police, expedite the absorption of state budget and provincial budget. Don’t let too many provincial budgets parked at the central bank,” he said. (ast)

http://www.thejakartapost.com/news/2008/10/11/analysts-advise-govt-end-rhetoric-and-scare.html

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