Board governor of Bank Indonesia - Photo by BI Office

JAKARTA (TheInsiderStories) – Bank Indonesia (BI) believes that the flow of foreign funds to Indonesia’ financial markets will be more profound after the presidential election on April 17, said the senior governor. The flows is estimated around $26 billion and by the third week of March 2019 has reached $6.42 billion.

Mirza Adityaswara said on Tuesday (02/04), that the large amount of foreign capital inflows was due to reduced political uncertainty which could strongly signal the direction of Indonesia’ economic policy going forward.

“Hopefully after the general election, uncertainty regarding politics will be disappeared. So more funds can go into Indonesia and we’ll monitor it,” said the senior deputy governor.

The decision about the executive figure who will lead Indonesia also will reduce the uncertainty factor that affects investor confidence. He compared the economic conditions during the presidential election five years ago.

In 2014, Indonesia was quite lucky because during the Presidential Election, the global economic condition was quite good. At that year, total foreign capital entered to capital market reached $26 billion.

This amount represents the average foreign capital entering the Indonesian financial market each year. According to him, external economic factors had gradually improved and were able to encourage the flow of foreign capital.

The improved external situation was due to the softening direction of the US Federal Reserve’s monetary policy and promising US and Chinese trade dispute negotiations.

Indonesia, said Adityaswara, still needs a lot of foreign capital to finance the current account deficit. Because export performance has not improved, and import performance continues to increase, Indonesia needs a flow of foreign capital to maintain economic stability.

“The current account deficit can be pressed down through adequate amount of foreign investment. Usually a year’s foreign investment from the balance of payments side is $15 billion-18 billion,” he noted.

With the large flow of foreign capital, he hopes to influence the current account deficit which is expected to improve in the first quarter of 2019 compared to fourth quarter of 2018 which amounted to 3.5 percent of Gross Domestic Product.

This current account deficit improvement is expected to continue until second quarter of 2019 so that it can influence BI interest rates that have been held for 5 months at the level of 6 percent.

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