Has Indonesia managed to recover from the worst of its currency declines in 2013?

In a Bloomberg News exclusive interview with the Indonesian Finance Minister, Mr. Chatib Basri on February 24, 2014 while the G-20 Finance Ministers meetings were getting underway in Sydney, Australia, he was quoted as saying that the Indonesian economic growth might slow down in 2014 to between 5.50 percent to 5.80 percent, while the Bank of Indonesia (BI) has an annualised GDP target of 5.80 percent to 6.20 percent. Interest rates are currently maintained at an unchanged level of 7.5 percent as of its last policy rate setting committee meeting on February 13, 2014. Inflation levels as measured by the consumer price index (CPI) is hovering at approximately 8.22 percent as of January 2014, while expected inflation target is currently set by BI at 4.50 percent.

The expected slowdown in growth forecasts for the Indonesian economy has also impacted the Indonesian Rupiah currency which has been gaining against the US Dollar despite being labeled by Morgan Stanley Investment Research that the country was part of the so-called ‘Fragile Five’, which comprised of Indonesia, India, Brazil, Turkey, and South Africa. As of Friday, February 21, 2014, the Indonesian Rupiah was trading at approximately 11,743 per dollar, or a foreign exchange gain of 3.5 percent since the start of 2014. The feat does illustrate a major comeback for the Indonesia, given that it has traded to historic lows of close to 12,200 to 12,500 levels in 2013 when the US Federal Reserve decided to gradually roll back its monetary stimulus measures which caused quite a significant amount of volatilities since the middle of 2013 when the first hint of monetary drawbacks coming from former Chairman Ben Bernanke during one of the US congressional testimonies.

The 2013 declines of the Indonesia Rupiah currency has benefited the economy through slow growth in consumer discretionary spending, favorable trade balances, among others, which will help to tame down expected inflation. Mr. Basri was quoted by Bloomberg News that he is quite satisfied with the recent currency moves as the government closely monitored the amount of monetary flows in the financial system, while also paying close attention on how to manage the volatilities associated with such monetary flows, as this was regarded as the most uncertain due to the fact that fund flows move rapidly in and out of the financial system on reaction to any major market moves such as the recent turmoil among many emerging market currencies. This has resulted in some emerging market economies deciding to impose capital controls in order to curb such volatile flows.

Mr. Basri has also outlined several plans in order to entice foreign investors to stay invested in Indonesia, instead to driving them away to other countries in the region. Japan’s Toyota Motors has earlier announced that it is going to shift some of its manufacturing operations from political-stricken Thailand into Indonesia, The latest decision by Toyota was a necessary move in order to ensure the safety of its staff members. It also helps to create jobs in Indonesia, which according to Mr. Basri that in order to employ Indonesia’s 2.4 million job applicants each year, the economy needs to expand by more that 6.00 percent.

The latest comments coming from the Indonesian Finance Minister comes as no surprise as the country is currently scheduled to head to the polls to elect new members of the Indonesian Parliament come May 2014, while the Presidential elections are scheduled to be held in June 2014. The Indonesian government is aware about the potential fallouts coming from a continued depressed economy, and has devoted its full focus on trying to revive the economy through foreign direct investments (FDI) such as the latest moves by Toyota Motors, incentives provided to foreign investors to put capital to work in the country, rather than remitting abroad which could potentially worsen the amount of current account deficit. The trade outlook has been generally robust due to the weakened Indonesian Rupiah currency. It is generally hoped that with the gradual improvement in the outlook of the Indonesian economy, the Indonesian people are able to cope with the various challenges thrown at them, and manage it well during the process.

About Hock Meng Tay - Chief Editor, Asia-Pacific Region

Hock Meng Tay, CAIA has written 181 post in this blog.

Chief Editor, Asia-Pacific Region Hock Meng Tay is a CAIA holder and is currently taking CFA qualification. He has over 10 years of experience working as research associate in several investment companies.He is an expert in financial analysis and has published research reports in his current role. He obtained his Masters of Business Administration in Integrated Management and Masters of Arts in Economics while serving his internship in Starsource Inc

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About Hock Meng Tay - Chief Editor, Asia-Pacific Region

Chief Editor, Asia-Pacific Region Hock Meng Tay is a CAIA holder and is currently taking CFA qualification. He has over 10 years of experience working as research associate in several investment companies.He is an expert in financial analysis and has published research reports in his current role. He obtained his Masters of Business Administration in Integrated Management and Masters of Arts in Economics while serving his internship in Starsource Inc

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