Photographer: Dimas Ardian/Bloomberg

Goldman Sees Indonesia Less Vulnerable to Selloff Than 2013

  • Rupiah was Asia’s best-performing currency after yen last year
  • Growth forecast to quicken to 5.3% in 2017 from 5% this year

Indonesia is better placed to tackle any currency volatility and capital outflows triggered by higher U.S. interest rates than during the taper tantrum in 2013, according to Goldman Sachs Group Inc.

The rupiah, Asia’s best-performing currency after the yen last year, may not depreciate significantly from the current level as the high yield offered by government bonds give some buffer against capital losses, Andrew Tilton, Goldman Sachs’ chief Asia-Pacific economist said in an e-mail.

Foreign investors sold a net $2.8 billion of Indonesian stocks and bonds last quarter as investors dumped emerging-market assets following Donald Trump’s surprise U.S. election victory. That the drove rupiah lower, forcing policy makers to intervene to stabilize the currency, in a trend reminiscent of the taper tantrum in 2013 when the U.S. Federal Reserve’s signal of stimulus withdrawal prompted an Indonesian selloff.

“Indonesia has made several positive adjustments since the taper tantrum in 2013, including a narrower current-account deficit, lower gross external indebtedness and higher foreign-exchange reserves, all of which help to reduce its vulnerability,” Tilton said in response to questions from Bloomberg. “Some reversal of the commodity price decline may also help Indonesia’s current account balance over the coming year.”

Indonesia’s foreign currency reserves have grown to about $111 billion from a 2013 low of $93 billion, according to central bank data. The rupiah gained 2.3 percent against the dollar in 2016, capping the first annual gain in six years. The currency was little changed at 13,476 to a dollar by 11:51 a.m. in Jakarta on Tuesday.

Growth Drivers

Southeast Asia’s largest economy may expand 5.3 percent in 2017 from 5 percent estimated for this year, Tilton said. The risks include a legal cap on the country’s fiscal deficit and the high sensitivity of the rupiah to U.S. policies and capital flows, he said.

“We remain optimistic on the Indonesian economy,” Tilton said. “The main drivers of growth are likely to be private consumption and public sector investment, with much of the boost to come after the tax amnesty window closes in March 2017.”

President Joko Widodo, also known as Jokowi, has pushed through a tax amnesty program that’s earned the government about 100 trillion rupiah ($7.4 billion) so far, helping to ease pressure on the fiscal deficit. He has also pledged to ramp up spending on new roads, ports, railways and airports to boost growth. Fitch Ratings last month raised Indonesia’s outlook to positive on prospects of reforms in the past year supporting economic growth.

Bank Indonesia took advantage of low inflation and cut its benchmark rate six times in 2016 as it sought to boost lending and economic activity. The central bank is likely to remain on hold for a prolonged period amid potential currency volatility given the high foreign ownership of local currency sovereign bonds, particularly during periods of risk aversion and a broader emerging markets sell-off, Goldman’s Tilton said.

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