14 June 2022 (closed)
Jakarta Composite Index (7,049.88) +54.44 +0.78%
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EUR/IDR (17,335) +57.05 +0.33%
The central bank of Indonesia (Bank Indonesia) informed that around IDR 30 trillion (approx. USD $2.26 billion) of capital outflows from Indonesia occurred after Donald Trump was chosen as 45th US president in November. His victory caused a high degree of uncertainty about future US political and economic policies, while markets also expect to see a stronger US economy as Trump is expected to focus on the interests of the USA, and not so much on its impact on the international community.
Juda Agung, Executive Director of Economic and Monetary Policy Department Bank Indonesia, stated that - despite the recent capital outflows - conditions remain conducive this year with year-to-date capital inflows into Indonesia of around IDR 105 trillion. Next year, however, it will be a more challenging year as investors may become more nervous about the direction of US economic and political policies. This could imply rising appetite for safe haven assets. Moreover, in several countries within the European Union (EU) it will be election time, hence contributing to political uncertainties.
Although the Trump-effect is regarded the biggest challenge according to Bank Indonesia, the elections in Europe also pose risks as results could see rising nationalist forces in power that have anti-EU sentiments. Therefore, it is not unimaginable that more "Brexits" could follow. Although such turmoil in the EU would not directly affect Indonesia, Agung says these issues would undermine global economic activity and therefore it will definitively have a (indirect) impact on Indonesia's economy.
However, Agung also emphasized that Indonesia's macroeconomic fundamentals are currently strong, particularly now commodity prices and the rupiah have started to strengthen. Moreover, after a recent visit to Singapore Agung concluded that investor confidence in Indonesia has increased.
Meanwhile, Enny Sri Hartati, Director at the Institute for Development of Economics and Finance (Indef), informed that recent capital outflows from Indonesia are caused by global sentiments, not by Indonesia's economic fundamentals. However, foreign outflows also involve speculators that seek profit. She therefore advises the government to combat speculators by making it less easy to move funds abroad. Moreover, she adds that interest rates have to reflect demand and supply more accurately in order to narrow opportunities for speculators.