Although the Indonesian rupiah has been strengthening against the US dollar since mid-December 2017, the rupiah may encounter serious pressures in the year 2018 amid US tax reforms, the US Federal Reserve's further monetary tightening, and unstable geopolitics. Meanwhile, Indonesian exports are expected to grow, but only in the range of 5-6 percent year-on-year (unlike 2017 when the nation's exports rebounded 17 percent).
As the central bank of Indonesia (Bank Indonesia) may need to intervene in markets in order to safeguard a stable rupiah rate, the rising trend of Indonesia's foreign exchange reserves may stagnate this year. The country's foreign exchange assets climbed from USD $99.4 billion at the end of 2013 to USD $130.2 billion at the end of 2017.
Bhima Yudhistira, economist at the Institute for Development of Economics and Finance (Indef), remains optimistic that Indonesia's foreign exchange reserves can be maintained around USD $130 billion throughout the year 2018. However, he adds that this is still a rather low level of exchange assets, equivalent to only 14 percent of the country's gross domestic product (GDP). In fact, Indonesia ranks among the lowest in terms of foreign exchange assets in the Southeast Asian region.
For comparison, the foreign exchange assets of the Philippines, Thailand, and Malaysia are equivalent to 28 percent, 58 percent, and 34.2 percent of the countries' GDP, respectively.
In order to improve the foreign exchange assets, Yudhistira sees one structural solution: Indonesian exports need to grow and therefore the government is advised to encourage the development of downstream processing industries.
Meanwhile, the tourism industry may become the key source of foreign exchange in 2018. This industry is now still second after palm oil exports.
Bank Indonesia announced on Monday (08/01) that the country's official reserve assets rose to USD $130.20 billion at the end of 2017, up from USD $125.97 billion in the preceding month. The increase was primarily attributed to foreign exchange receipts from government global bonds as well as tax revenues and the government's oil & gas export proceeds. Proceeds surpassed the uses of foreign exchange for repayments of government external debt and Bank Indonesia's maturing foreign exchange bills.
Indonesia's foreign exchange assets can adequately cover 8.6 months of imports or 8.3 months of imports and servicing of government external debt repayments, well above the international standard of reserve adequacy of three months of imports.
Foreign Exchange Reserves Indonesia:
¹ in billion USD dollar at the year-end
Source: Bank Indonesia