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Indonesia’s forex reserve increase in December fuels optimism
Indonesia recorded a US$10
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Indonesia recorded a US$10.5 billion year-on-year increase in its foreign exchange (forex) reserves in December, paving the way for optimism that bigger reserves will follow in the first quarter of this year on the back of the tax amnesty.
Bank Indonesia (BI) announced on Monday that the country’s forex reserves stood at $116.4 billion in December, growing by 10 percent compared to the December 2015 figure of $105.9 billion. On a month-on-month basis, it increased by $4.9 billion from $111.5 billion in November 2016.
The northward move was driven by tax revenues, government global bonds issuance, government foreign loan withdrawal and oil and gas export proceeds, whose combined amount exceeded the government’s external debt repayments and matured BI’s foreign exchange securities (SBBI), according to an official statement from the central bank.
“The reserves increase was already expected because of the global bond issuance and the tax amnesty’s repatriated funds,” Bank Central Asia (BCA) chief economist David Sumual said by phone on Monday.
The government in December issued US dollar-denominated debt papers, known as global bonds, worth $3.5 billion to prefund the 2017 state budget, which usually sees low taxation income in January.
The country also saw inflows worth Rp 89.6 trillion (US$6.7 billion) from asset repatriation under the government’s flagship tax amnesty as of Dec. 31. Financial Services Authority (OJK) data revealed that funds entering the domestic financial system were mostly recorded as “cash and cash equivalents”.
“There will be more asset repatriation [funds] entering the country so that forex reserves can increase further,” David said.
Taxation Directorate General data showed that as much as Rp 141 trillion of the repatriated assets was contributed by taxpayers who took part in the first and second phases of the program. The tax amnesty will run until March.
A stronger forex reserves figure would become a buffer for the rupiah amid global economic volatility stemming from the projected rise of the US Federal Reserve fund rate this year, David added.
A relatively stable rupiah value against the greenback last month also contributed to the rising reserves figure as the central bank used less “ammo” on market intervention, PermataBank economist Josua Pardede said.
The rupiah depreciated by 0.7 percent in December to Rp 14,412 per dollar amid less volatility, compared to the previous month when it fell almost 2 percent after Republican Party candidate Donald Trump won the United States presidential election.
“Indonesia’s strong economic fundamentals are expected to cushion global risk potentials this year, so the forex reserve will stand at around $115 billion or $120 billion by year-end of 2017,” Josua said.
