Strong Fourth Quarter Alleviates Pressure on Indonesian Currency, With Regional Index Also On The Rise

Indonesian consumers received a much-welcomed boost in the shape of news that the rupiah has regained ground on the US dollar, enjoying an increase of just under 5% between October’s nadir and December’s figure. This is a consequence of a more concerted effort by overseas businesses to invest in Indonesia, with Indonesia’s neighbors in Vietnam and the Philippines similarly adopting a more positive outlook on their country’s economic wellbeing.

Research from the Financial Times uncovered how perceptions of finances in the region have been ameliorated by this strong fourth quarter, with their gauge of economic sentiment rising to its highest figure for the region in the past four years. The same index filtered to just Indonesia similarly reveals its highest score since the start of 2014, a clear indication that the economic situation in the region is trending in the right direction.

Indonesia has emerged as one of Asia’s most rapidly developing economic powers and the market leader in south-east Asia. With that prestige comes greater scrutiny and adds pressure to maintain such a rate of development. In mid-January, Indonesian finance minister Sri Mulyani Indrawati asserted her willingness to reintroduce higher levels of taxation on imports in the hope of countering the nation’s growing trade deficit.

Indrawati caveated that possibility by reassuring consumers that a trade deficit is an expected side effect of being a developing country but, when coupled with a plummeting rupiah, it is easy to understand why many Indonesians felt disillusioned with their nation’s financial situation. The subsequent rise of the rupiah and the strong fourth quarter results could be the turning point in improving economic sentiment in the long term.

Source: Sri Mulyani Indrawati via Facebook.

It is inevitable that any instances of economic instability bring to mind the 1997 Asian economic crisis, a tumultuous period that saw currencies devalue at shocking rates and private debt rise to overwhelming levels. Having occurred just over two decades ago, the event lives on in the memory of a great proportion of Indonesian consumers. Yet the Indonesian government is keen to stress that such a crisis would not happen in 2019, a result of the nation’s flexible exchange rate, independent central bank and overall stronger fiscal position. These factors not only provide domestic reassurance but also make Indonesia a more attractive proposition for foreign investors.

Continental neighbors are the most significant investors in Indonesia, with Singapore, Japan and China those with the biggest stakes in Indonesian industries. Indonesia’s mining, electronic and machinery industries traditionally attract the most attention from overseas but Indonesia is also making waves in new ways. The country’s foreign exchange market is developing rapidly, with many experts forecasting that Indonesia will become one of the leading global markets in forex trading. This market permits brokers from all over the world to invest in Indonesia, as opposed to predominantly attracting other Asian countries. 

Indonesia have also enjoyed a rise in the number of fintech companies starting up in the country. Another, newer source of investment could come in the shape of companies moving their factories to Indonesian soil. The trade impasse between China and the United States has other countries fearing for the long-term prosperity of their factories based in the former country, with Indonesia’s proximity and status as a developing financial power making it an attractive host.

The Taiwanese electronics manufacturer Pegatron has already made this move from China to Indonesia, with more expected to follow. This anticipated investment is a significant part of Indonesia’s improving economic sentiment, although experts have been keen to stress that any changes in US-China relations could change the picture. For now, the rise of both economic sentiment and the value of the rupiah will have Indonesian consumers hoping that 2019 is a more prosperous year for their nation and the region.

To Top

Pin It on Pinterest

Share This