Update COVID-19 in Indonesia: 70,736 confirmed infections, 3,417 deaths (9 July 2020)
6 July 2020 (closed)
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Fitch Ratings, one of the three major global credit rating agencies, said that its latest annual survey on economic prospects and the business climate in Indonesia indicates an optimistic view. Respondents in the survey, mostly CEOs and Division Heads at financial institutions, companies, government and media, were asked 11 questions about the Indonesian economy, reformation and prospects for the next five years. Andrew Steel, Managing Director Head of Asia Pacific Corporate Ratings Group, presented results of the survey.
Two-thirds of the respondents said they do not agree to label Indonesia as one of the fragile five economies (Brazil, India, Indonesia, South Africa, and Turkey). This term, introduced by Morgan Stanley, refers to the over-reliance of these five countries on foreign capital. Being assessed as fragile, these markets are highly vulnerable to sudden capital outflows amid further US Federal Reserve tapering and US interest hikes. In 2013, Indonesia was one of the hardest hit emerging market when speculation about a winding down of the Federal Reserve's quantitative easing program resulted in large capital outflows as global investors were concerned about Indonesia's high inflation (accelerating to almost nine percent year-on-year after the government raised prices of subsidized fuels in June 2013) and the record high current account deficit (USD $9.9 billion or 4.4 percent of the country's gross domestic product in the second quarter of 2013). This resulted in a plunging stock market and a sharply depreciating Indonesian rupiah exchange rate (weakening over 21 percent against the US dollar).
US Dollar (USD) to Indonesian Rupiah (IDR)| Source: Bank Indonesia
In 2014, matters have changed as Indonesia's current account deficit and inflation have eased, while more clarity about the US bond-buying program made global investors more confident to invest in emerging markets. The rupiah is now Asia's best-performing currency having appreciated more than 6 percent against the US dollar in 2014, while Indonesia's benchmark stock index gained 13 percent so far this year. In February 2014, IDR 16.3 trillion (USD $1.4 billion) worth of funds went to the Indonesian bond market, a 200 percent increase compared to the previous month. About 63 percent of respondents in the Fitch Ratings survey expressed to intend to invest more in Indonesian bonds in the next 12 months. Furthermore, about half of respondents believe that the rupiah will remain stable, while 42 percent expect the currency to appreciate further this year.
Although aproximately 60 percent of respondents feel that recent macroeconomic policies of the Indonesian government will impact negatively on investments, about 82 percent of respondents believe that Indonesia's economic growth will accelerate due to structural reforms. The 2009 Mining Law is an example of new policies that are expected to curb investments in the mining sector as it involves several anti-foreign provisions such as the requirement to divest 51 percent of shares to an Indonesian stakeholder(s) within ten years of operation.
Two-thirds of respondents are certain that the Indonesian government will focus on infrastructure development in the next five years. The lack of quality and quantity of infrastructure is one of the major bottlenecks of the Indonesian economy as it causes logistics costs to rise steeply.
The survey also indicates that 87 percent of respondents believe that corruption (as well as transparancy) will improve in the years ahead. This is a remarkable optimistic view as both these issues have a long history in Southeast Asia's largest economy. Corruption remains widespread, evidenced by the numerous corruption cases that fill the pages of Indonesian newspapers.
Respondents were less positive about GDP growth. According to fourty percent of respondents, Indonesia's economic expansion will slow further this year. Since 2011, GDP growth has been slowing. Forecasts for GDP growth in 2014 range between 5.3 and 5.9 percent.