Keep Them "Barefoot and Pregnant"

 

Indonesia's economic is currently facing the downturn. Its steady economic growth over the past five years has tapered off recently . Most of the price of stocks in Indonesia have escalated compare to its asset values and other earning assets which were exhibited by the high earning/ price ratios over the past five years now begin to fell sharply.

Indonesia's economic decline were caused by several major factors such as corruption, overregulation , inefficiencies of labor supply, etc. But above all of that, the author believes that there were systemic flaws occurred on the indonesia market which leads to highly inflated stock prices over the past years.

This escalated prices were caused by lack of law enforcement in Indonesian securities markets, lack of accountable financial education, and irrational investor sentiment which were propagated mainly by media or the other parties which have the access to the news.

All of the above factors have made "overpriced" equities which will leads to bubble that will burst eventually. The extreme case was the Indonesian economic crisis in 1997 which were mainly caused by the excessive private foreign debt and eventually lead the banking system in Indonesia into demise.

Whilst the government has always careful in managing government debt, 85% of Indonesia's foreign debt increase comes from private loans, and by December 1997 the number of debts to be repaid in private sectors in less than one year amounted to U.S. $ 20.7 billion (World Bank 1998).

This lead to private banks bail out and assets seizure by the Indonesian government which were financed by Indonesian recaps obligation. Up until now the the recaps obligation payment have yet not settle and most of the Indonesian people still have to pay the obligation.. While most of the bankers who received the bail-out had run away with the money or able to buy back its assets long after the crisis with deflated prices.

In this blog, the author hope to give a little contribution for a better Indonesian market with his naive financial opinion rather than keep them "bare foot and pregnant".