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Capital outflows occurred despite improving local economy
Indonesian residents shifted US$10 billion in funds in the first nine months of this year to overseas banks at a time when local financial markets actually strengthened, a World Bank report showed
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ndonesian residents shifted US$10 billion in funds in the first nine months of this year to overseas banks at a time when local financial markets actually strengthened, a World Bank report showed.
“A total of $10 billion has been invested offshore in the year to the third quarter, the most in any four quarters on record,” the World Bank said in its report released Wednesday.
“The size of these transfers in the third quarter, $3.5 billion, is unusual given the strengthening of market conditions in this period, with past significant transfers offshore occurring when financial markets have been weakening rapidly,” the bank said, although some of the funds may have returned to help boost Indonesia’s portfolio market.
Since March the Jakarta Composite Index (JCI) has gained 92 percent, making it the top regional performer after the Bombay Stock Exchange, which soared 109 percent, the report showed. The growth rate of both markets has been slow since late September.
On Wednesday the JCI gained 1.11 percent to 2,522.55. The rupiah was traded at 9,485 per dollar at 4:16 p.m. in Jakarta, compared with 9,475 Tuesday, according to Bloomberg.
The report attributed the recent increase in stocks and rupiah as part of the inward reflows from the $10 billion that left the country.
“Some of these funds may have made their way back into Indonesia through ‘offshore’ investments in financial markets.”
Another important factor that strengthened stocks and the rupiah from March to December was the large inflow of foreign capital into Indonesia. Non-residents invested about $6.5 billion in Indonesia’s financial assets since March, and a large part of the funds entered in early September and early October.
“The reasons behind these inflows are not unique to Indonesia but rather linked to low interest rates in the US and the weakening US dollar,” it said.
The rupiah has stabilized in a range of about 9,450 per dollar from early October to early December.
Bank BNI chief economist A. Tony Prasetiantono said Indonesia’s high economic growth had helped attract investors.
The economy is set to grow 4.5 percent this year, the World Bank said. It may grow 5.6 percent in 2010 as the global economy recovers.
The major drivers of Indonesia’s growth in 2010 will be domestic demand, supported by a recovery in external demand, it said. Investment growth is also expected to accelerate.
