Starting Off Right
Executive Summary
This year kicked off on an optimistic note. The Fed’s decision to begin tapering ended uncertainties, and reignited global investment in emerging markets countries. Both the Indonesian stock market index and the rupiah gained in the first few weeks of the year.
The new optimism was further signaled by Bank Indonesia’s announcement that foreign reserves had inched up to nearly $100 billion (when the rupiah was weakening, there was a perception that FX reserves were likewise falling). Apparently Bank Indonesia did not intervene very aggressively to shore up the currency, leaving the Central Bank in a stronger reserve position. With the issuance of the global bond at the beginning of the year, it’s reasonable to expect reserves to top $100 billion by the end of this month.
Trade news is also good, with a healthy surplus in November 2013. Higher exports, at $15.93 billion, and lower imports, at $15.15 billion, finally produced a surplus of $780 million. The surplus provided a strong boost for the government, and inserted a shot of confidence into the markets. Inflation for December was benign, at 0.55%. The yearly rate was 8.38%, still within optimistic predictions. Containing price increases made policymakers at the Central Bank confident about the stability of the economy; they thus kept the benchmark rate flat at 7.50%.
On the ground, the optimism was shared by palm oil farmers, who enjoyed a much better price for their harvest. The weakening currency, coupled with better international prices, drove farmer prices up by more than 20%. This was mostly felt outside of Java, especially in Sumatera and Kalimantan (Borneo) islands, and will lead to higher demand for industrial products from Java. Demand for cars and motorcycles from those areas may increase again this year. That will compensate for the weakening demand from other areas.
In January, Jim O’Neill – who while at Goldman Sachs in 2001, coined the acronym “BRIC” – began promoting a group of countries he calls MINT (Mexico, Indonesia, Nigeria and Turkey), which he expects to be the next economic giants. As happened with the BRICs, promotion of MINT countries may encourage global investors to pour in money.
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