Country appears to be weathering economic conditions better than the others in the “Fragile Five”
An employee counts Indonesian rupiah banknotes at a currency exchange office in Jakarta, Indonesia on October 23 2018. File Picture: REUTERS/BEAWIHARTAA decade ago Indonesia earned the unwelcome label of being among the so-called “Fragile Five” emerging markets, economies highly vulnerable to capital outflows and a currency slump whenever global interest rates rise.
This contrasts with 2013, when the Fed's mere mention of plans to taper stimulus triggered destabilising capital outflows that saw the rupiah drop 20%, forcing Bank Indonesia to hike rates by 175 basis points. Policymakers say they have learnt lessons from past crises and devised policies such as setting up a domestic non-deliverable forward foreign exchange market, promoting greater use of other currencies in trade and investment rather than the US dollar and selling more bonds to local investors to avoid over-reliance on foreign hot money.
Moreover, Indonesia's stock market is up by more than 5% year to date compared with falls in other major Asian equity markets, after having Southeast Asia's busiest IPO schedules last year. “For the whole year, the [current account] deficit will be small and the balance of payments overall will book a surplus. This means fundamentally, foreign exchange supply is high and it will maintain the rupiah exchange rate stability,” Warjiyo said at BI's latest policy meeting.
“Much of [Indonesia's] improvement seems of temporary nature,” said Thomas Rookmaaker, head of Asia-Pacific sovereigns at Fitch Ratings.
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