Sign up | Log in



Home  >>   Daily News  >>   Indonesia News  >>   Economy  >>   Risk in rise of foreign capital
NEWS UPDATES 6 October 2010

Risk in rise of foreign capital

Related Stories

October 1, 2010
Indonesian growth forecast looks good

September  30, 2010
Indonesia set for rating upgrade

September 17, 2010
Corruption a threat to Indo economy

September  10, 2010
 Indonesia more competitive than ever

September 6, 2010
 Indo banks facing difficulties with micro credit

August 27, 2010
 Indo banks to meet new LDR rules

Bank Indonesia has finally won over markets into accepting its policy outlook. Still, it doesn't feel like a success.

Instead, the policy that is designed to reduce the allure of domestic assets to yield-hungry investors is attracting capital into the country's debt markets and increasing the risk that authorities will take steps to control the tide.

Foreign buying of government bonds has revived in the past month as markets accepted the central bank will keep to its promise of holding its policy rate at a record low well into 2011, a view underlined by a policy meeting on Tuesday.

Foreigners now own a record 28.2 percent of the market, well above the levels seen in other Asian countries.

Like other emerging markets, Indonesia is concerned that a flood of capital into the country now could just as easily flood out later - such as when developed markets stabilize and look poised to start a monetary tightening cycle.

The 1997-98 Asian financial crisis, when capital flight brought the economy to its knees, remains a raw memory.

In June, the central bank imposed a 28-day holding period on its popular bills and pushed investors toward longer-dated bills and government bonds to cope with the foreign money flooding into the short end of the debt market.

The move calmed volatility but has done little to reduce the allure of Indonesian debt, which yields several times more than equivalent debt in developed markets.

Foreign bond investment had eased up in anticipation of a central bank rate rise this year.

Instead, Bank Indonesia raised bank reserve requirements in September, persuading markets that raising rates would be a last resort.

The central bank is convinced it has chosen the lesser of the evils by keeping rates at a record low.

If it raised rates, capital inflows would be even greater, it argues.

The inflows have pushed the rupiah up 5.4 percent this year. Last week, Finance Minister Agus Martowardojo said he did not want to see the currency overvalued.

"We have other initiatives to tackle hot money," he said.

Analysts say Indonesia is unlikely to impose outright capital controls for fear of scaring off investors and hurting its chances of securing an investment-grade credit rating.

Reach Southeast Asia!
10- Nations, 560- Million Consumers
And $1 -Trillion Market
We are the Voice of Southeast Asia Media Kit
The only Media Dedicated to Southeast Asia Advertising Rates for Magazine
  Online Ad Rates

Comment on this Article. Send them to

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




1.  Verifier

1. Verifier

For security purposes, we ask that you enter the security code that is shown in the graphic. Please enter the code exactly as it is shown in the graphic.
Your Code
Enter Code

Home | About Us | Contact Us | Special Feature | Features | News | Magazine | Events | TV | Press Release | Advertise With us

| Terms of Use | Site Map | Privacy Policy  | DISCLAIMER |

Version 5.0
Copyright © 2006-2020 TIME INTERNATIONAL MANAGEMENT ENTERPRISES CO., LTD. All rights reserved.
Bangkok, Thailand