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Sunday, December 19, 2010

JCI increase has no effect on the economic situation

Jakarta - The Composite Stock Price Index (JCI) is quite spectacular scoring record in 2010 was to create a new record in history. JCI until the third quarter of 2010 was recorded up to 40% and soared 190% since March 2009.

JCI began to recover after being affected by the crisis in 2009. During the year 2010, JCI could penetrate record high in history at the level of 3786.09 on December 9. Thus, throughout 2010, JCI gained nearly 1,200 points since the opening of the beginning of the year, January 4, 2010, the Jakarta Composite Index closed at 2575.41.

While the level of yields on government bonds denominated in local currency was at its lowest point ever recorded. Yield rate or 10-year government bonds fell 280 basis points since January (from 9.9 to 7.1%), 5 year bond fell 230 points (8.8% to 6.5%).

Rising and falling bond yield index that country is not separated from the magnitude of capital flows during the year 2010. But the World Bank warned that large capital flows could disrupt stability.

"Capital inflows can also be inflated asset prices and destabilize the financial markets," the World Bank quarterly reports on the economy of Indonesia.

Although the index rose sharply, but the World Bank does not see it will have a major impact on the Indonesian economy.

"The small size of capital markets means it is unlikely to bring significant impact on foreign economies, for example in terms of increased consumption due to increased income effect," the World Bank report.

To decrease country bond yields, the World Bank to see if it means big savings in the cost of government borrowing.

But the World Bank highlights the high foreign ownership in debt securities and also shares that make Indonesia's financial system becomes more vulnerable to capital flow reversal direction abruptly.

The World Bank noted, in late September 2010, over 67% foreign ownership in Indonesia (equivalent to U.S. $ 126 billion), 28% in government bonds (more than U.S. $ 20 billion) and 26% of SBI (U.S. $ 7 billion) .

"The risk of reversal in capital flows suddenly very relevant to Indonesia capital market which is open," the report said.

If the heavy capital outflows occur suddenly, there will be downward pressure on foreign exchange and also led to increased yields and borrowing costs.