The weakening of the rupiah and the Indonesian Composite Index (IHSG) since February, despite a good economic foundation, requires an immediate solution. The weakening was triggered by external factors.
By
·3 minutes read
Kompas/Priyombodo
Prices on the Jakarta Composite Index are displayed on screen at the Indonesia Stock Exchange (IDX) in Jakarta on Friday (9/3).
The weakening of the rupiah and the Indonesian Composite Index (IHSG) since February, despite a good economic foundation, requires an immediate solution.
The government, market players and finance observers have said that the weakening of the rupiah was triggered by external factors. The weakening occurred after the newly appointed US Federal Reserve chair, Jerome Powell, told US Congress in late February that the US economy remained strong.
The statement indicated that the Fed would increase its interest rate from three- to fourfold in 2018. This indicates an increase in the yield of US securities, which will lead to an outflow of foreign funds from Indonesia. Late last week, the rupiah exchange rate to the US dollar was Rp 13,794, lower than Rp 13,774 a day before. Meanwhile, the IHSG fell from 6,689 on Feb. 19 to 6,433 on March 9.
The amount of foreign funds exiting Indonesia in the first three months of the year will reach Rp 12 trillion (US$840 million). The outflow of foreign funds continues, even though the Indonesian government’s bond yield for a 10-year tenor has increased from 6.2 percent to 6.8 percent.
In macroeconomic terms, Indonesia is in a good condition. The country’s economic growth in the fourth quarter of 2017 reached 5.19 percent, and inflation in January and February this year was 0.79. The trade balance has a $11.84 billion surplus, which strengthens national foreign exchange reserves. The government will maintain these indicators.
Amid these convincing economic indicators brought about by Indonesia’s macroeconomic policies, we must remind ourselves that the world is facing a changing economic order. Uncertainty is increasingly inevitable in the future and we must be able to implement long-term responses.
Kompas/Priyombodo
Prices on the Jakarta Composite Index are displayed on screen at the Indonesia Stock Exchange (IDX) in Jakarta on Friday (9/3).
In her opening speech at a high-level international economic conference on Feb. 28 in Jakarta, International Monetary Fund (IMF) managing director Christine Lagarde said that, under a changing economic order, countries must prepare to face three major challenges: managing increasing uncertainties, creating increasingly inclusive economies and preparing for the digital revolution.
Indonesia successfully passed the global financial crisis of 2008 and the period in 2013 when the Fed reduced its supply of funds into the global money market. Now, countries must be prepared to face the phased monetary normalization among advanced countries.
A number of experiences and empirical studies have provided us with the information on what governments must prepare in facing these three major challenges.
Deepening the financial market, reforming the labor market, industrialization and ensuring higher quality exports are the solutions for many countries. Another solution is to push for a shared or inclusive economy to reduce the welfare gap and ensure a more sustainable economy.
To respond to the digital revolution that is expected to take over 60 percent of jobs through automatization, investing in human resources will be important. There will be no instant or short-term solution for achieving sustainable and quality growth.
