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NEWS UPDATES 10 July 2009

Yudhoyono’s possible landslide buoys Indonesian markets

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The apparent re-election of reformist Indonesian President Susilo Bambang Yudhoyono was welcomed by economists Thursday as good news for Southeast Asia's biggest economy, AFP reported.

Investors reacted warmly to a likely Yudhoyono victory, but selling of commodity-related stocks on lower oil prices left the bourse to close up by just 0.03 percent to 2,083.97.

Analysts generally agreed investors would welcome a stronger mandate for Yudhoyono to fight poverty and corruption in the mainly Muslim archipelago of 234 million people, which has been an engine of growth in Asia.

"I think the market is quite positive on the expectation of this result," UOB Kay Hian brokerage director David Chang told AFP. "The (Jakarta Composite) index could easily gain 20 percent in the next 12 months."
Yudhoyono used a press conference after his first post-election cabinet meeting to pledge his government would take advantage of macroeconomic stability to boost exports and foreign investment.

"If our investments grow, we will be able to develop our infrastructures as well as irrigation systems, electricity energy and fertilizers. "If our macroeconomy is in good shape, it will help boost the real sector."

The local stock market has already soared almost 50 percent this year and the economy is forecast to post growth of more than four percent in 2009, third only to China and India of the G20 group of rich and developing countries.

While much of that success has come from strong underlying domestic demand rather than brilliant economic stewardship, the liberal ex-general is credited for trying to remove the main obstacles to growth and investment.

His anti-corruption campaign has stood in stark contrast to the institutionalised corruption fostered for 32 years under the Suharto dictatorship, which collapsed in 1998.

He has also promised to reform the bureaucracy and slash red tape that has been a major impediment to greater investment in infrastructure needed to unlock the resource-rich country's huge economic potential.

His finance minister, Sri Mulyani Indrawati, is one of the most respected economic managers in Asia, and his running mate on the election ticket was trusted former central bank chief Boediono.

In contrast, his opponents in the election race -- opposition leader Megawati Sukarnoputri and Vice-President Jusuf Kalla -- touted populist slogans of "self-reliance" and blamed foreigners for stealing the country's resources. "If SBY and Boediono are elected, then we can expect two things.

First is the continuity and stability of (the) political situation for the next five years. Second, we can expect that they continue the economic reform in Indonesia," Chang said, using Yudhoyono's nickname.

"The rupiah will be stronger. Because of political stability, investors have more confidence in the rupiah and investing in Indonesia. If the rupiah is stronger, then inflation will also come down," he said. "But the market is expecting more rate cuts by the central bank."

The rupiah, currently around 10,150 to the dollar, has been one of the best performing Asian currencies in recent months. "Yudhoyono's next government is likely to have broader parliamentary support, be more secular and technocratic-based," Standard Chartered said in an analysis.

Analysts said greater support in parliament would help Yudhoyono be more selective about appointments to key cabinet posts, allowing him to choose capable technocrats rather than make political appointments.

His huge mandate -- with more than 60 percent of the vote according to early counts -- would also free him from relying too heavily on Islamist parties in his coalition for support. "Armed with a stronger mandate and with a high calibre economics team at his side, the pace and quality of reforms should improve," DBS bank said in an analysis.


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