Agus Martowardojo, Governor of Indonesia’s central bank (Bank Indonesia), predicts that the current economic turmoil in the Eurozone, caused by the Greek debt crisis, will impact on the stability of developing countries, including Indonesia. Although in terms of both trade and investment there should not be a real impact originating from Greek turmoil, the perception of macroeconomic stability will be somewhat hit on the back of global uncertainty. In line with most markets, Indonesian stocks and the rupiah weakened on Monday (06/07).
Martowardojo said that Bank Indonesia is ready to take a number of measures in case the Greek crisis is felt severely by Indonesia. These measures aim at safeguarding the stability of the country’s financial and capital markets as these are the sectors that are believed to be affected foremost. Each time when there is heightened (global) uncertainty, investors will seek safe(r) haven assets (particularly in the USA and Japan), causing capital outflows from emerging markets including Indonesia. Moreover, apart from turmoil in the Eurozone, emerging markets are also bracing for higher interest rates in the USA (possibly this year) as the world’s largest economy is set to tighten its monetary policy.
Indonesia’s benchmark stock index (Jakarta Composite Index) declined 1.33 percent to 4,916.74 points today (06/07), led by finance-related stocks as investors are concerned about the effects of the Greek referendum result. In this referendum the Greek population overwhelmingly voted against the reform programs that are demanded by Greece’s international creditors. This may cause a Greek exit (Grexit) from the Eurozone and may jeopardize the whole financial system of the Eurozone.
Jakarta Composite Index (IHSG):
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.28 percent to IDR 13,353 per US dollar on Monday (06/07).
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia
Martowardojo also said that Indonesia is most likely to see a trade surplus in June. Statistics Indonesia will publish the country’s June trade data on 15 July. In May, Indonesia posted a USD $950 million trade surplus. Cumulatively, Indonesia’s trade balance improved to a positive USD $3.75 billion in the first five months of 2015.
I think the Indonesian government will pursue trade surplus to offset a weak exchange rate and pressure of interest rate hikes from the Federal Reserve. Perhaps this is one of the strategies used to offset the foreign capital flight from Indonesia to the cash flows of export revenue. In this situation the individual and the family that the most affected. The Government should also educate citizens with the knowledge of how to deal with the economic crisis. Financial literacy education programs and personal financial planning must be increased in society.