Investors in Doubt as Election Demonstrations Erupt
The National Police Headquarters had established Jakarta status as Siaga 1 from May 21 to 25 in anticipation for national security after the announcement result of the national recapitulation of the 2019 election. The prediction was right, what was expected about the ‘people power’ movement finally came to its presence. Huge mass including out-of-towners assembled in front of Bawaslu requesting answers and transparency, accusing the Elections Committee of unfairness as there were claims of cheating and shadow votes from around Indonesia, rejecting the KPU’s statement that the incumbent president Joko Widodo and Maruf Amin has won the elections. The demonstrations spread out rapidly from the center, Bawaslu, to other regions in Jakarta, such as Slipi and Petamburan, causing mass violence and even deaths. Consequently, the Indonesian financial sector was affected hugely by the sentiment, as foreign inflow went to the minus and the stock market weakened, especially since news of worsening global trade war has come.
As a result of the city-wide demonstrations in Jakarta, investors were frightened, inducing a domino effect that sent the stock market trembling. Jakarta Composite Index decreased as a whole and inflow reduced. During Wednesday (22/5), foreign investors were recorded on 14.00 PM as having a net sales rate in Rp 24.7 billion in the regular market (reported from RTI). In the past 14 days, as political hostility brewed, the total net selling of foreign investors in the regular market reached Rp. 9.88 trillion. Not helping the case, Rupiah has depreciated 1,9% since May 3rd, pushing investors to sell funds before it depreciates further. The phenomenon is known macroeconomically as a Capital Flight situation when the net capital outflow increased significantly as inflow of funds from foreign investors decreased by the numbers.
Moreover, the demonstration and fear of the situation caused an uncharacteristically low volume of transaction in the Indonesia Stock Exchange. In the whole day, the transaction rate recorded only Rp 6,94 trillion and far from the daily average Rp 10 trillion, while at the same time Jakarta Composite Index has fallen 0,21% to 5,939.05. All in all, as political demonstrations continue to erupt in Indonesia’s financial capital, the economic forecasting seems bleak for our short-term future.