JAKARTA (TheInsiderStories) – The long trade dispute between the United States (US) and China has impacted foreign investors to pull out their capital from Indonesia. In May, only Rp18.12 trillion (US$1.25 billion) has exited Indonesia, with its peak in the middle of this month.
At the end of May, Bank Indonesia (BI) stated, Rp112.98 trillion foreign capital recorded entered Indonesia, fell from Rp131.1 trillion at the beginning of the month.
BI’ Governor Perry Warjiyo said that the worsening conflict between two economic powerhouses has made foreign investors stepped outside Indonesia.
He explained that Rp56.01 trillion entered to debt securities and Rp57.48 trillion to stocks market. Warjiyo highlighted the attractive yield of domestic financial instrument which he considered competitive compared to peers. Recently, the yield of a 10-year-maturity government bond is at 8.01 percent.
Warjiyo then assured that money market transaction and liquidity will be further maintained. Especially, BI will be in the market and implement double intervention depends on the condition.
“We will continue to be in the market and will carry out measures of exchange rate stabilization in accordance with the fundamentals, if needed, either through intervention in foreign exchange or state securities purchases on the secondary market,” Warjiyo said.
Even so, Warjiyo believed that investors confidence will make foreign capital returning to Indonesia. According to him, Rupiah against US Dollar is still under-control due to exporters transaction.
On May 31, Jakarta Interbank Spot Dollar Rate closed at Rp14,385. It has been strengthening by 0.55 percent since early 2019.
Previously, the central bank report current account deficit (CAD) in in the first quarter (1Q) of 2019 was recorded at $7 billion or 2.6 percent of GDP. Previous quarter the deficit worth of $9.2 billion or 3.6 percent of GDP.
The declining of CAD was supported by a surplus of goods, non-oil and gas trade balance. It was also influenced by the declined in imports, in line with government policy to control imports of certain commodities since the end of 2018.
Nevertheless, the deficit continued to rise mainly due to low foreign tourist arrivals, which declined in accordance with the seasonal pattern, in the midst of declining imports of freight services.
Furthermore, the capital and financial account surplus in the 1Q of 2019 were recorded at $10.1 billion, supported by a relatively high direct investment inflow. This reflects by investors’ positive perceptions of the Indonesian economy.
In addition, the slackening risk on global financial markets has also been a factor in foreign capital inflows. However, the capital and financial account surplus in the 1Q of 2019 lower than the surplus in the previous quarter, parallel with the government’ payment for maturing global bonds.
Overall, Indonesia’ balance of payments (BoP) recorded a surplus of $2.4 billion. With these developments, the position of foreign exchange reserves at the end of March 2019 was $124.5 billion or equivalent to 6.8 months of imports and government foreign debt and is above the international adequacy standard of around three months of imports.
In the future, BoP’ performance is predicted to improve and can continue to sustain the resilience of the external sector. BI assured will continue to strengthen coordination with the government and related authorities in order to strengthen the resilience of the external sector, including to control the current account deficit so that it decreases towards the range of 2.5 percent of GDP in 2019.
BI continues to look at global developments that can affect Indonesian balance of payments, such as slowing global economic growth, uncertainty in global financial markets, and the volume of world trade and global commodity prices which tend to decline.
BI will also continue to strengthen the policy mix to ensure continued macroeconomic and financial system stability, as well as strengthen policy coordination with the government in encouraging the continuation of structural reforms.
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