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Record-high foreign reserves to strengthen Indonesia’s resilience amid looming taper
Record-high foreign reserves will help Bank Indonesia (BI) intervene in the market to maintain stability in exchange rates and bonds should a shock occur, especially amid the looming taper from the US Federal Reserve
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Money matters: A Bank Mandiri employee counts US dollar bills at the state bank’s cash center in Jakarta. Indonesia’s foreign reserves increased in the last four months. (JP/Dhoni Setiawan)
T
he record-high foreign reserves seen in August suggest that Indonesia has strong fundamentals to face shocks in the financial market due to external factors such as the looming taper by the United States (US) Federal Reserve.
The foreign reserves stood at US$144.8 billion in August, up by $7.5 billion from July, Bank Indonesia (BI) data show. This is enough to cover 9.1 months of imports or 8.7 months of imports and official debt servicing. For imports alone, it has exceeded the international rule of thumb to cover at least three months of imports.
“This will clearly strengthen the fundamentals of Indonesia’s economy amid the pandemic and the normalization of monetary policy among central banks globally,” Josua Pardede, chief economist at publicly listed Bank Permata, told The Jakarta Post in a phone interview on Sept. 27. “It becomes an absorber to mitigate the risks in case of a capital reversal.”
The foreign reserves hovered below $100 billion in 2013, when the country saw a capital flight that led to a depreciating rupiah and a downturn in the stock and bond markets, a series of events referred to as the taper tantrum, following the US Fed’s talk to slow asset purchases.
Read also: Fed taper fears: How vulnerable is Indonesia’s economy?
The rise in foreign reserves in August was partly supported by the additional allocation of 4.46 billion special drawing rights (SDRs) from the International Monetary Fund (IMF), which amounted to $6.31 billion. SDRs are international reserve assets to support IMF member countries.
