Will Indonesia survive another external shock? Indonesia cannot be complacent as the global financial environment becomes even more troubled. The threat from depleting financial liquidity can only intensify as the US Federal Reserve pursues its tighter monetary policy. As available capital becomes scarcer, investors will become more rigorous in assessing and pricing risk.
They will also be quicker to switch asset allocations in response to changing circumstances. The recent sharp spike in Italy’s certificates of deposit spreads and the abrupt corrections in equity markets across
Fortunately, Indonesia has strengthened its resilience to these kinds of shocks. In 2013, when then Fed chairman Ben Bernanke hinted that the Fed would soon start raising rates, there was a massive outflow of capital from emerging markets which were deemed to be at risk from such a policy tightening.
Consequently, the Indonesian rupiah fell from 9,000 to 10,000 to the US dollar to above 13,000 in a few weeks. But it eventually regained most of the lost ground. In August 2015 when China’s surprise decision to adjust its exchange rate policy sent global markets into a tailspin, the rupiah held up well.
There are solid reasons Indonesia has become better able to absorb these emerging-market shocks.
Indonesia is known for its large domestic consumption base and natural resources. These factors make investing in Indonesia interesting despite the complicated bureaucracy and uncertainty of laws and regulations.
(source: Indonesia Investment/South China Morning Post)