ASEAN KEY DESTINATIONS
Indonesia foreign reserves swell 21 percent
“Our foreign exchange reserves as of May 20, 2011, were US$116.5 billion, and persistent overseas funds inflows into the country have helped the rupiah strengthen,” said Darmin Nasution, governor of Bank Indonesia. “The trend is still the same, the pressure is still for the rupiah to strengthen, although perhaps not as quickly as in past months.”
The currency has appreciated 4.6 percent this year, rising to 8,575 against the dollar as of Friday, while the Jakarta Composite Index has risen 3.5 percent.
Economists have said loose monetary policies to spur recovery in major developed economies such as the United States, Japan and Europe have prompted overseas funds to seek higher returns in emerging economies, including Indonesia.
But Darmin said the central bank was well aware that the flow of capital could reverse, causing a shock to the economy.
“We are always watching the effects of the crisis on the world economy,” he said. “But in essence, there is no need to worry. We’ve been preparing [for a reversal].”
The biggest target for foreign investors is Indonesian government bonds, with overseas holdings of the debt rising 15 percent this year to Rp 225.9 trillion ($26 billion) as of May 20, according to the Finance Ministry’s debt management office.
“If there are no interest rate raises in America and Europe, then the foreign reserve growth will likely last until the end of the year,” said Juniman, an economist at Bank Internasional Indonesia. Low interest rates in developed economies have kept down returns, making Indonesia with its 6.75 percent key rate especially attractive.
Economist also said Indonesia’s impressive growth, forecast at 6.5 percent this year from 6.1 percent in 2010, and a possible investment grade from rating agencies has also attracted investors to Indonesian assets.
Fitch lifted its credit outlook for country to positive from stable on Feb. 24 after upgraded Indonesia’s sovereign debt rating to BB+, one notch below investment grade, in January 2010.
Reaching investment grade would be a major success for the nation, allowing it to borrow more cheaply on international debt markets as well as further driving investor interest.
Letters that do not contain full contact information cannot be published.
Letters become the property of AseanAffairs and may be republished in any format.
They typically run 150 words or less and may be edited
submit your comment in the box below