Indonesia downplays economic crisis impact

The Indonesian government says the country has more than enough firepower to survive the deepening global crisis, which has recently weakened the rupiah, reduced exports and spooked the stock market.

The rupiah on May 31 dropped to a 31-month low of 9,643 against the US dollar as foreign investors cut holdings of risky assets, such as those of Indonesia, on fears that the global economic recovery would stall amid the ongoing euro-zone debt crisis and weak data from economic giants, the US and China.

Bank Indonesia (BI) governor Darmin Nasution said on Monday the country had more than enough foreign exchange reserves to stabilise the rupiah by buying the currency when it was being sold off by international funds. “The international standard of the acceptable level of foreign exchange reserves is between three and four months’ worth of imports. So, we can say that our current reserves are very strong and secure to protect the rupiah,” Darmin told a meeting with legislators at the House of Representatives’ commission XI overseeing banking and finance.

Indonesia’s US$116.4-billion (Bt3.69 trillion) foreign exchange reserves as of the end of April this year were equivalent to 6.2 months of imports and government external debt payments.

The local stock markets have also witnessed heavy selling, with the nation’s benchmark stock index, the Jakarta Composite Index (JCI), tumbling 13.5 per cent within a month to 3,654 on Monday, the lowest level since last November.

Finance Minister Agus Martowardojo said the plunging index was not a major concern as Indonesia was not the only country in the world to suffer such a situation. “I believe the drop is only a temporary impact of the global crisis. Later everything will return to normal and become stable again,” he added.

The MSCI Asia-Pacific index also fell for a fourth day on Monday, but Indonesian stocks suffered the steepest drop among major Asian markets which saw between 1 and 2.8 per cent declines during the day, including those of South Korea, Hong Kong, Singapore, Malaysia, Thailand and Japan.

The impact of the crisis has not only been felt in the financial sector, but also in trade.

Indonesia suffered a trade deficit of $641.1 million in April this year, the first deficit in nearly two years as exports unexpectedly fell by 3.5 per cent to $15.98 billion on a yearly basis, while imports rose 11.7 per cent to $16.62 billion.

The country previously recorded trade surpluses of $840 million in March, $692 million in February, and $920 million in January.

Bambang Brodjonegoro, the Finance Ministry’s fiscal policy agency interim head, said that the trade balance needed to be restored as soon as possible. “If the trade balance does not recover quickly then it will affect our current account deficit,” Bambang said.

Indonesia’s current account saw a $2.9-billion deficit in the first quarter of this year as imports grew faster than exports, putting pressure on the nation’s balance of payments to book an overall deficit of $1 billion.

Balance of payments deficits worry investors because they may drain a country’s foreign exchange reserves and limit the ability to tackle external shocks.

Overall, the Finance Ministry and the central bank remained upbeat on Indonesia’s macroeconomic performance, with estimates that the economy could grow by up to 6.7 per cent this year, versus 6.5 per cent last year, despite slowdowns elsewhere in the world.