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WHILE a resumption of strong portfolio flows so far this year suggests the Indonesia story is getting renewed and favourable consideration from foreign investors, the World Bank has warned the country faces a highly challenging 2014.
The bank’s new Indonesian Economic Quarterly, pointedly titled Investment in Flux, appears as investment confidence, domestic and foreign, has got another lift from the confirmation of Jakarta governor Joko Widodo will contest, and most likely win, the 2014 presidential race.
The decision by Indonesian Democratic Party of Struggle doyenne Megawati Sukarnoputri that “Jokowi” — not she — would carry the party’s banner in July lifted the Jakarta stockmarket 4 per cent in the final two hours of trade on Friday, while the currency strengthened nearly 2 per cent against the US dollar.
The 52-year-old former small businessman from Jogjakarta is perceived by investors, domestic and foreign, as by far the most market rationalist of the main candidates. A Jokowi administration is expected to promote public-private investment in critically underfunded sectors like transport infrastructure and healthcare.
The Jokowi effect reinforces strengthening sentiment about Indonesia apparent since late January, which in turn reflects significant improvements in current account deficit, government fiscal deficit and inflation outlook since the third quarter of last year.
The resumption of strong portfolio inflows since January says foreign short-term investors are buying the Indonesia story again, though with more care this time, and that outlook should be assisted by the prospect of Jokowi’s likely victory.
However, the World Bank quarterly warns that unpredictable investment growth — the result of overall lower commodity export prices and tougher financing conditions later in the year — will suppress Indonesia’s GDP growth rate to 5.3 per cent this year.
“Positive signs are emerging in global growth, but challenges remain for Indonesia, including flat terms of trade, higher interest rates and policy uncertainty,” Indonesia lead economist Jim Brumby said yesterday at the report’s release in Jakarta.
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