Important Meetings:

G20 Summit : 4-5 Sep 2016

BOE : 15 Sep 2016

BOJ & ECB : 21 Sep 2016

FOMC Meeting : 21-22 Sep 2016

OPEC Meeting : 26-28 Sep 2016

With worse than expected job data a few days ago, can The Fed really hike in September? It seems very unlikely as BOE, BOJ, and ECB are still continuing the monetary easing, if not expanding it. However, I expect even more hawkish statements from the Fed as they are preparing and managing markets’ expectations towards the December hike.


*US Treasury 2Y Yield (Bloomberg). This yield doesn’t indicate less than a month rate hike. 

While the US Treasury yields are quite volatile, the survey consensus are way more volatile just like the stock market. The meetings date are just to close that it’s getting more difficult for analysts & economists to predict the effects one central bank would bring to other central banks. Historically, September is the worst performing month for S&P 500. But, it might not apply to this election year unless Trump wins.

The OPEC meeting will also be very crucial to the world because oil price will determine not only the inflection point (potential reversal) of low inflation and interest rates which are expected to be lower for longer, but also to other commodities prices as well as countries who depend heavily on it especially the emerging markets. Russia is urging but Saudi isn’t going to cut production anytime soon as Iran is keep expanding its output after years of sanction. Not to mention that these oil producers want to eliminate shale producers. They are starting to feel the damage to their fiscals as margins are very tight but no one seems to be willing to lose market share.



*the chart reiterated my writing on funds flowing from developed market to emerging market. TAX AMNESTY – THE MAGIC PILL

For the past 2 months (late June – late Aug 2016) Indonesian market had euphoric rally due to approved tax amnesty program by the house of representatives (DPR) after waiting approx. one year. Stocks, bonds, IDR rallied significantly making Indonesia the best performing market for the past 2 months as foreign inflows came in enormously. The rally was stopped by the hawkish Fed. Locally, investors started questioning whether or not tax amnesty program and most importantly repatriation would succeed. Total funds reported in the program was IDR 150T ; IDR 120T declared from Indonesia, IDR 20T declared abroad, IDR 10T were repatriated. Sri Mulyani expected only IDR 100T funds will be repatriated from abroad.


Many borrowers prepay their loans simply because People prefers to pay loan interests as a tax shield. But when business are down, there is no reason to expand or it migh be too risky to do so. More importantly they will soon be able to utilize their own funds (reported in tax amnesty program) then the tax shield may make them end up paying more than the tax they should pay (lower revenue, lower taxable income). The lending interest rates are still pretty high although the deposit rates have already decreased significantly.
With that said, I expect banks’ profitability will be affected although not much, loan growth cannot grow as fast as expected, while NPL and provisions are still increasing. This however, will lower banks’ LDR and improve liquidity.


A number of people start to doubt that the program will work. In my personal opinion, I strongly believe that people will eventually participate because the penalty is just too cheap. One of the reasons the progress is so slow is because most people rely heavily on tax consultants who are overwhelmed by the number of new clients. More important things are trust and control issues.

Firstly trust issue, it is right to judge that old Indonesia’s law was not reliable and not accountable. No one really believes that the law can protect them. People are afraid that the program could be cancelled as soon as Jokowi steps down and they will have to pay even more money than before (a trap). That’s the most popular reason why people are reluctant to bring back the money to Indonesia.

Secondly, control issue. You can do anything when you have the money. The rich used to control government (law, regulator, etc.). Ever since Jokowi (president) and Ahok (governor of Jakarta) stepped in, the rich start to lose control over the government because they don’t take bribe. The two leaders have proven that the tax we now pay is utilized to serve the interests of Indonesian people. But many thinks that when you can’t control the government it’s safer to keep your money abroad even though the government is doing great job, just in case the government rob you one day.

Funny as it sounds but that’s the fact. Rich people who benefitted the most from the country and the tax amnesty program are still reluctant to pay their greatly discounted obligation. They blame the government when the business is bad but are not willing to contribute to the country even though their net worth have rocketed due to their successful businesses and property investments in Indonesia. It won’t be a shock for me if participation rate increases significantly in the 2nd & 3rd batches of the program, although the penalty is higher.


Low official repatriation level doesn’t mean little repatriation. After talking with many people from different roles from bankers, fund managers, business owners themselves, I learnt that many people are repatriating their money even though it won’t be declared as repatriation funds. They prefer to pay higher penalty so they can move their money anywhere and anytime without having to stay in Indonesia for 3 years. This is what I called a shadow repatriation. Based on this information, I expect foreign inflows (both Indonesians & foreigners) to keep entering Indonesia to the next one year. This without doubt will drive prices higher starting from bonds, stocks, property, stronger IDR, etc. But most importantly it will boost the Indonesian economy by creating big amount of liquidity which will benefit banking system (monetary) and the government (fiscal).

Disclaimer : This note is not a research report. It doesn’t represent any company, institution, or individual. This is not a recommendation or suggestion. Information and data are collected from various public sources. Reader should be able to distinguish between fact on opinion.