Indonesia is not yet going to recession, because the domestic economy did not contract in 1Q20. On the other hand, investors are still paying close attention to the release of Indonesia’s Gross Domestic Product (GDP) data for the 2Q20 period on Wednesday (05/08), whether or not according to the consensus and projections of BI and the Ministry of Finance. Based on a Bloomberg survey, Indonesia’s annual GDP contracted -4.61%. Bank Indonesia (BI) and the Ministry of Finance project each contracted -4% and -3.54% to -5.08%. While the reasons for the Indonesian economy are not contracting, because the 1Q20 period still recorded an expansion of 2.97% YoY. Over the weekend, the rupiah exchange rate on the spot market closed down 0.4% to the level of IDR 14,600 / USD. Meanwhile, the BI middle rate closed down 0.57% to the level of IDR 14,653 / USD.
Government stimulus for Corporate Credit. The government guarantees working capital loans provided by 15 banks to private corporations with a credit ceiling of IDR 10 billion to IDR 1 trillion. Until next year, working capital loans channeled by banks through the program are targeted to reach IDR 100 trillion. The 15 banks involved in the private corporate working capital loan guarantee program. In this program, the government will guarantee 60% of working capital loans (the remaining 40% will be borne by banks) for corporations in the non-priority sector. Whereas corporations in priority sectors receive 80% guarantees from the government (the remaining 20% is borne by banks). The nine priority sectors that have secured working capital loans include tourism, automotive, textiles and textile products (TPT), footwear, electronics, processed wood, furniture, paper products, and other business sectors that meet the criteria of Covid and labor intensive.
Moody’s: The Quality of Indonesian Corporate Bonds Worsens. The international rating agency, Moody’s Investor Service, estimates that the quality of Indonesia’s corporate debt will deteriorate along with a sharp decline in the economy due to pressures on consumption power and lower commodity prices. Moody’s projected that Indonesia’s corporate financial metrics will weaken for the full year 2020 and will only gradually recover in 2021, although revenue will still be in a lower position than in previous years. Risk financing increases because around 42% of high-ranking global bonds will mature in December 2020 and the biggest risks will be faced by companies in the property and mining sectors. Meanwhile, the income of Indonesian corporations included in Moody’s scope is expected to fall by around 20% YoY in 2020 and will remain at 10% below the realization of 2019 in the following year.
Investors Observing Public Purchasing Power. Inflation data will be released on Monday (03/08), with a Bloomberg survey of July inflation projected at 1.72% YoY and 0.05% MoM respectively. While external data, market participants are looking at US unemployment data for July that is projected to be an increase in benefits claims by 2.3 million. For the record, the US unemployment data for June was 4.8 million. Tuesday (04/08), the government again offered PBS027, PBS026, PBS025, and PBS028 in the Sukuk auction plan. Previously, the government won PBS028 (New Issuance) with a reward rate of 7.75%. The government succeeded in suppressing the cost of funds in the 26-year tenor PBS028 issuance, in line with the improving investment risk profile in Indonesia at the end of July 2020. Indonesia’s 2-year tenor Credit Default Swap (CDS) recorded a decline of up to 5%, or the deepest decline compared to the 5-year and 10-year tenor CDS, which respectively declined by 4.4% and 4%.
-REVIEW (July 30, 2020)-
-PRICE OF BENCHMARK SERIES-
FR0081 (5yr): -1.1 Bps to 102.38 (5.92%)
FR0082 (10yr): -1.5 Bps to 101.49 (6.79%)
FR0080 (15yr): -0.4 Bps to 102.33 (7.24%)
FR0083 (20yr): +1.0 Bps to 101.22 (7.38%)
-YIELD OF GLOBAL BONDS-
UST 2yr: -0.014 point to 0.11%
UST 5yr: -0.020 point to 0.23%
UST 10yr: -0.028 point to 0.54%
UST 30yr: -0.030 point to 1.20%
German Bund 10yr: -0.042 point to -0.54%
UK Gilt 10yr: -0.030 point to 0.08%
-CDS OF INDONESIA BONDS-
CDS 2yr: +0.65% to 48.57
CDS 5yr: +0.08% to 117.81
CDS 10yr: +0.51% to 185.11
-CRUDE OIL PRICES-
WTI: -3.27% to USD39.92/Barrel
BRENT: -1.90% to USD43.25/Barrel