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Indonesia braces for '€˜Grexit'€™ impact

Indonesia is steeling itself for the economic impact of Greece’s potential exit from the eurozone, an event that could stall global recovery, hurt exports and create short-term volatility in the financial markets, analysts have warned

Satria Sambijantoro and Anggi M. Lubis (The Jakarta Post)
Jakarta
Tue, July 7, 2015

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Indonesia braces for '€˜Grexit'€™ impact

Indonesia is steeling itself for the economic impact of Greece'€™s potential exit from the eurozone, an event that could stall global recovery, hurt exports and create short-term volatility in the financial markets, analysts have warned.

A Greek exit from the European single-currency region would have lasting knock-on effects on trade and financial markets, potentially lowering gross domestic product (GDP) growth in the Asia-Pacific region by 0.3 percent in 2016, according to analysis from IHS Inc., a US-based research firm.

As in other emerging markets, share prices on the Indonesia Stock Exchange (IDX) dropped on Monday, with the benchmark Jakarta Composite Index (JCI) falling 1.33 percent to 4,916.74 at the close of trading. Meanwhile, the Indonesian rupiah declined slightly to 13,341 per US dollar in late trading Monday from 13,319 in the previous close.

'€œThe most vulnerable Asian currencies vis-à-vis the US dollar in this Greek exit scenario with significant contagion effects are the Indonesian rupiah and the Malaysian ringgit,'€ said Rajiv Biswas, IHS chief economist for the Asia-Pacific region.

Major stock indices across the globe fell after Greek citizens, in a referendum held on Sunday, voted '€œNo'€ to a bailout proposal and austerity measures proposed by the International Monetary Fund (IMF)and European leaders.

With the rejection of austerity measures, Greece'€™s exit from the euro is now the base-case and most likely scenario, a number of analysts, including from JPMorgan Chase, have warned.

Indonesian exports to eurozone economies account for only 2.5 percent of the country'€™s GDP, but the archipelago is exposed to a downturn in commodity prices that could occur when economic woes in Europe intensify, according to Credit Suisse analyst Santitarn Sathirathai.

In the commodity market, Europe as a bloc is the world'€™s second-biggest consumer of industrial metals, data compiled by Bloomberg show.

Coordinating Economic Minister Sofyan Djalil meanwhile warned that the situation would turn from bad to worse if European countries failed to reach a consensus over Greece and the country ended up being kicked out of the euro, the minister comparing the situation to a '€œhouse of cards that is slowly collapsing'€.

'€œIf the problem is limited to Greece only, with other economies in the European region remaining intact, then the impact on our economy will be subdued,'€ he said on Monday evening.

'€œBut, if this issue becomes a problem for Europe as a region, then it will hurt our exports,'€ the minister cautioned.

Analysts said that while no direct impact would be felt from a Greek eurozone exit in Indonesia, a lack of positive catalysts in the domestic market, coupled with currency concerns, had played a part in the JCI'€™s steep decline.

'€œGreek debt is not a new story and investors have long priced the factor into their investments,'€ said Bahana TCW Investment Management chief economist and director, Budi Hikmat.

'€œAt the same time, however, there is no positive sentiment to prop up the index with so little progress having been made in government projects,'€ Budi said.

Lucky Bayu Purnomo from LBP Enterprise said the JCI might dive to 4,850 this week, and further in the coming week, as investors waited for certainties on Greek debts maturing on July 20.

The concern, he said, was of a potential euro crash and strengthening US dollar, which might further darken Indonesia'€™s gloomy economy.

'€œWhile historically more rupiah are on the market during the holiday season, this year shows otherwise, and an expected currency disruption at a time like this has spooked investors,'€ he said, added that incoming Japanese economic updates '€” which might not be satisfying '€” had also contributed to the JCI'€™s plunge.

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