JAKARTA (TheInsiderStories) – Bank Indonesia (BI) noted, Indonesia’ foreign exchange (forex) reserves stood at US$124.5 billion in March, slightly up 0.97 percent compared to February 2019 worth of $123.3 billion.
The position of forex reserves is equivalent to financing seven months of imports or 6.8 months of imports and payment of government foreign debt, and is above the international adequacy standard of around three months of imports. The Bank considers that forex reserves are able to support the resilience of the external sector and maintain macroeconomic and financial system stability.
BI’ spokesman Onny Widjanarko explained that the increase in forex reserves in March was influenced by oil and gas forex and other forex receipts. Going forward, Bank Indonesia considers forex reserves to be adequate, supported by confidence in the stability and prospects of a good domestic economy.
The central bank believes that the flow of foreign funds to Indonesia’ financial markets will be more profound after the presidential election on April 17. The flows is estimated around $26 billion and by the third week of March has reached $6.42 billion.
Senior Deputy Governor of BI Mirza Adityaswara has said 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.
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 United States Federal Reserve’ monetary policy and promising trade dispute negotiations with China.
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.
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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