Sunday, August 30, 2015

BLACK MONDAY CAUSE OF UNCERTAINTY


China Central Bank

Did Yuan devaluation cause global economic recession ?. No definite answer yet until data say something. One thing for sure is uncertainty hanging on until some time, let's wait and see.

Yuan devaluation aim are to push exports up with lower price down and economic growth up reach a certain level back to help local economy. But the cheaper export goods prices the lower the inflation rate in two main destinations were Europe Union and US. We could imagine that UE and US  will import more goods from People Republic of China. Ultimately US  and UE would lower down the inflation rate and products price in US and EU up higher and lose in competition. Economic recovery and buying power in EU will diminish and later would affected PRC economy as well.



Federal reserve Bank
What happened then in US ?. Yuan devaluation make US$ more stronger then before and US lose the competition with PRC. Would The Fed canceled the decision for the time being caused by Yuan devaluation ?. The answer for this question will wait for some time until September or the end of the year data, especially about inflation since PRC export deflation push the inflation in US down lower. The cancellation to increase the rate of interest off course will produce longer uncertainty.

How the effect to Indonesian market, positive or negative impact ?. We should waiting for uncertainty for some time. If the goods price more expensive for PRC market mean Indonesia will ripe negative impact. Or positive impact if  PRC economy growth back to normal, the demand for Indonesia goods will increase.

What make me wondering were that business World reacted not only by rational thinking and economic motive only but by irrational behavior just copied or followed what others did. Other rush to sell their stocks or buying dollar currencies made the situation worse. In this case, foreign exchange rate may drop deeper, recently Indonesia Rupiah fell down over Rp 14.000 as happened in Asia economic crisis in 1998.

What Indonesia will do right away, is to strengthen domestic economy its under his control to push domestic consumption power like cash for work, create projects who need a lot of work forces, so ten they will use for consumption. These work forces are middle and low group of citizen. These kind of action we did in 1998 economic crisis.

The new policies that companies who intent to lay off mass workers may get tax cutting to keep te companies running.
Government keep finance mega Infrastructure projects who needed a huge of cash to buy raw materials and workers wages.

The last but not least is that Government never ever state wrong signal to the market in order to prevent the market rush and doing irrational decisions to worsen the economic situation.
Hoping the situation would be better soon.
  














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