Foreign Investors Respond Negatively to Disbanding of CGI
Monday, 29 January, 2007 | 13:26 WIB

TEMPO Interactive, Jakarta: Foreign investors have responded negatively to the Indonesian government's decision to disband the Consultative Group on Indonesia (CGI), a forum of countries and organizations granting loans.

Some investors are worried that the disbanding of the forum will result in their losing a reference point from which to evaluate investment in Indonesia.

However, as regards the long-term effect, it is felt that the decision will have a positive impact for the country.

A day after the decision was made, foreign investors sold shares valued at Rp546.2 billion in trading at the Jakarta Stock Exchange, on Friday (01/26).

In addition, foreigners only purchased shares worth about Rp221.5 billion.

The selling of shares by foreign investors resulted in a drop in the composite share price index last week to 1,735.71, although it closed the week up at 1,759.21.

In addition, the Rupiah exchange rate also dropped to Rp9,125 against the US dollar, and closed the week at Rp9,115 against the US dollar.

Jasso Winarto, a capital market analyst, and also Executive Director of PT Sigma Research Institute Inc., said that foreign investors are concerned and doubted the ability of Indonesian economics.

This disbelief emerged because of the disbanding of the CGI forum.

“From the government's point of view, the disbanding of the CGI was indeed positive,” said Jasso.

However, he went on to say that from the foreigners' viewpoint, the disbanding of the CGI has caused foreign investors to lose guidance in terms of measuring Indonesia.

Jasso also said foreign investors considered the government's step in disbanding CGI indicated that the government wanted to isolate itself from the international community.

In addition, it will lessen the transparency of policies applied.

Also, the government's plan of self-financing by issuing bonds was viewed as inappropriate.

However, capital market analyst Edwin A. Sinaga said he considered that there was no need to worry too much about the disbanding of the CGI.

According to him, the cause of the decreased index was that of interest rate sentiment and high-inflation trade.

“The signal is still positive because there is a growing optimism over performance in 2007 in response to the good issuers report of 2006,” he said.

MUCHTAR WIJAYA (PDAT)