Jakarta. International investors are still betting on Indonesia’s ability to perform a smooth democratic transition and steady the economy amid heightening external pressure from a global trade war, according to Aberdeen Standard Investments Indonesia, the local arm of the global investment manager.
Southeast Asia’s largest economy held a presidential election last month, with the official vote tally showing the incumbent, President Joko “Jokowi” Widodo, set for re-election.
The president has overseen moderate economic growth in his first term but is facing a fresh challenge from a deteriorating current-account balance amid an escalating trade war between the United States and China.
“Overall, Indonesia is still attractive for investment, especially for foreign investors,” Omar S. Anwar, president director of Aberdeen Standard Investments Indonesia, said on Thursday.
Presidential rival Prabowo Subianto is still making last-ditch attempts to cast doubt on the election result but Omar believes there is no reason to be concerned that Jokowi would fail to continue his term in October.
“On the other hand, there are things to watch out for that affect the stability of Indonesia’s economic growth this year, namely the current-account deficit,” Omar said.
Indonesia booked a record current-account deficit last year. A recent reading of export data was also discouraging. The country’s April trade deficit reached $2.5 billion, its largest monthly deficit ever.
For foreign investors, Omar said the ball is now with the president, whether he maintains the few seasoned names in his cabinet who have proven to overcome similar challenges in the past, or start with a clean slate to accommodate a bloated political alliance.
Jokowi said last week that he would double down on reform efforts and do “whatever is best for the country,” in his second term, as he would be free from the political compromises needed to seek re-election.
The Jakarta Composite Index has seen an 11 percent decline since the April 17 election, wiping out all the gains it made since the beginning of the year.
But foreign investors, amid all the market fuss, still bought a net of Rp 58 trillion ($4.01 billion) in local stocks so far this year, Indonesia Stock Exchange (IDX) data showed on Friday, with the bulk of the buying made just a week after the election.
For Bharat Joshi, investment director at Aberdeen Standard Investments Indonesia, the trade war between the United States and China would have little effect on Indonesia’s exports to China.
He said the most likely trade-war fallout transmission to the Indonesian economy was through inflation, as Indonesia still imports many of its basic needs, from soybeans to jet fuel.
For this reason, Joshi said he hopes the government would be able to maintain stability and prepare a special strategy to keep inflation in check to maintain people’s purchasing power.
The annual inflation rate has been below 3 percent in the past four months, with a slight uptick to 2.48 percent in April. Bank Indonesia targets an inflation rate of between 2.5 percent and 4.5 percent this year.
Low inflation has allowed the central bank to keep its benchmark interest rate steady at 6 percent on Thursday. The rate has been steady for the past six months.
- Foreign Investors Offload Asian Equities as Trade War Flares
- Foreign investors eye Vietnam’s e-wallet market
- More foreign investors pour money into Vietnam’s F&B industry
- Ministry proposes stricter requirements for foreign investors in Vietnam
- Vietnam’s F&B - a magnet for foreign investors
- High-level advisory suggests panel for easier entry to foreign investors
- Foreign investors keen on real estate projects in Hanoi
- Vietnam’s new regulatory changes to increase market access for foreign investors
- Vietnam’s Military Bank plans 7.5% stake sale to foreign investor
- Foreign investors race for Vietnam’s smart city solutions providers