Attracting Back Investment

KOMPAS/RADITYA HELABUMI

Having risen at one point to 6,000, the Jakarta Composite Index (JCI) closed up 0.83 percent, 48.89 points, at 5,956.83 in the Indonesia Stock Exchange in Jakarta on Friday. On Wednesday the JCI fell to 5,907.94.

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Under constant pressure and sharp falls in recent weeks, many believe the stock index and the rupiah will strengthen again.

The tough times faced by the economy, however, are not expected to pass soon. There are external factors affecting the situation, namely global sentiment, especially related to the US Federal Reserve’s plan to raise interest rates in the coming months.

This negative sentiment continues to put pressure on the rupiah exchange rate, which penetrated the psychological level of Rp 14,000 per US dollar this week, while the Jakarta Composite Index (JCI) dropped to 5,774.7 amid the massive selling of stocks by investors.

We should not allow the weakening of the rupiah and the JCI to continue with the potential to endanger the fundamentals of the economy, purchasing power and sustainability of the business sector. Intervention efforts have been carried out by BI, but the rupiah is unmoved. Pressure on the government to intervene through the buyback of shares/bonds of the state had also emerged in order to stem the weakening rate of the rupiah and JCI, which is considered excessive.

Since late January, capital outflows from the stock market and bond market reached more than Rp 61 trillion. However, intervention measures in the market cannot be done continuously, without being coupled with more aggressive steps to improve economic fundamentals, to restore investor confidence in the market. Without it, efforts to attract investors back will not be effective.

Worries about the fundamentals of the economy become an important factor contributing to the weakening of the rupiah and the index. Even though the macroeconomy in general is quite good – as reflected by low inflation, positive trade and current-account balances, and prudent fiscal measures with a budget deficit under control at 2.19 percent of the GDP – the realization of Q1/2018 GDP growth, which was below expectations, makes investors question the fundamentals of the economy.

The effort to attract investors back will not succeed without more serious efforts to restore confidence. One of them is by maintaining credible policy amid global uncertainty. Managing the pressure of rising crude oil prices could have an impact on the state budget. Coordination between the fiscal side, monetary and real sector is important here.

The wave of foreign capital outflows from emerging markets to developed countries is expected to ease in the coming months and some will return to the emerging markets. The cause is saturation in the markets of developed countries themselves. There is a need for diversification, as well as the fact that investment in the emerging markets is still very promising.

We must ensure that Indonesia is ready when that happens. Indonesia, with its large economy, economic growth above 5 percent and a growing middle-income segment, is still a magnet for investors.

With improvements in debt rating, competitiveness index, ease of doing business index and a series of deregulation/debureaucratization policies carried out by Jokowi-Kalla government in the last three years, investment should be further boosted, not only its portfolio, but also in direct investment (foreign Investment).