Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

Indonesia's tax-amnesty program is starting to a resemble a cart overloaded with hope. Although it's early days, the risk that the wagon will wobble under its own weight before reaching its destination is something investors can no longer ignore.

Consider the $161 million in penalties that President Joko Widodo has collected so far, both from people who declared assets hidden at home and abroad, and those who repatriated funds held overseas. That's barely 1 percent of the $12.4 billion the government assumed it would earn this year from the pardon. Unless Finance Minister Sri Mulyani Indrawati manages to make the nine-month-long program more attractive before it expires in March, it's likely to disappoint.

Why does this matter to investors? Start with the four large state-controlled construction companies: Waskita Karya, Pembangunan Perumahan, Wijaya Karya and Adhi Karya. The increase in their share prices has so much hope baked in that major slippage in the government's amnesty revenue, which would force the administration to slow its infrastructure program, could come as a rude shock:

Triumph of Hope
The outperformance of Indonesia's state-owned construction firms may not be sustained if the tax amnesty falters, squeezing government spending
Source: Bloomberg
*Market capitalization weighted index of Waskita Karya, Pembangunan Perumahan, Wijaya Karya and Adhi Karya.

Even if the government doesn't scale back its own construction orders, an unsuccessful amnesty would hurt builders. Jokowi, as the president is widely known, intends to bring back as much as $75 billion of his country's wealth from financial centers including Singapore. (So far, just 0.77 percent of the target has been met.) He wants to channel at least $22 billion of that money into state-owned firms' securities, with construction companies at the head of the queue. 

Two of the four builders have rights issues coming up. If the liquidity boost from the tax pardon fails to materialize, the credit profile of those companies could be stretched. In the past month, three of the four have seen their creditworthiness deteriorate by a notch, according to a proprietary Bloomberg metric.

Riskier Credit
One-year default probability of Indonesian construction firms has risen in the past month
Source: Bloomberg

The equity market, though, is still giving Jokowi and Sri Mulyani the benefit of the doubt. Astra International, the car dealership that investors view as a proxy for discretionary consumer spending, is trading at 18.5 times estimated annual earnings, or 2.4 standard deviations above the stock's average valuation over the past decade. 

Runaway Price
Indonesian car dealership Astra International's valuations are far higher than the historical average
Source: Bloomberg
*12-month blended forward estimate.

After paying the penalty, the rich in Indonesia will more confidently spend some of their newly declared wealth. While that may be a reasonable hypothesis for now, if undisclosed assets decide to evade detection even for a couple more months, both the Indonesian government and investors might start feeling the burden of their hope.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andy Mukherjee in Singapore at

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Paul Sillitoe at