The current reserves level was an increase of $2.3 billion from $133.6 billion in November and was estimated to be enough to cover 9.8 months of imports and payments of the government’s external debts, the central bank said. It was also above the international reserve adequacy standard of three months’ of imports.

“Bank Indonesia is of the view that the foreign exchange reserves are adequate, supported by stability and a positive outlook for the economy, in line with various policy responses to push for economic recovery,” the central bank said in a statement.

In August 2020, Indonesia recorded its highest forex reserves on record at $137 billion.

The government collected Rp 144.7 trillion ($10.4 billion) in income tax in December, raising the total figure to Rp 1.07 quadrillion throughout 2020. The figure is a 19.7 percent contraction from the previous year earlier as a result of slowing economic activity and the rollout of a large tax stimulus to respond to the coronavirus outbreak.

Meanwhile, the government borrowed Rp 1.19 quadrillion to cover a budget deficit of 6.09 percent last year as it ramped up spending to rescue an economy reeling from the pandemic.

The country suffered last year its first recession since the 1998 Asian financial crisis as the government struggled to contain the COVID-19 outbreak.

“We see Indonesia recording a higher balance of payment surplus in 2021 on the back of a manageable current account deficit and massive capital and financial account inflows,” Bank Mandiri economist Faisal Rachman wrote in a note. “This will support foreign reserves and, thus, the rupiah exchange rate going forward.”

The rupiah exchange rate depreciated sharply by 0.8 percent on Friday to 14,021 per US dollar after staying below the 14,000 mark since Monday. The currency is expected to further strengthen over the near-term supported by the government’s vaccination program and fiscal stimulus.

Foreign inflows to the portfolio market, including the bond market and the stock market, are expected to normalize this year, Faisal went on to say, driven by appropriate fiscal risk management, attractive interest rate differentials and a stable rupiah. 

“Moreover, the implementation of the omnibus law, the sovereign wealth fund and the Regional Comprehensive Economic Partnership may boost foreign direct investment,”  he said.

The ambitious omnibus law, or the Job Creation Law, was passed last year with the aim to cut bureaucratic red tape and jack up foreign investment to create jobs and accelerate economic growth.

Meanwhile, Indonesia’s new sovereign wealth fund is expected to attract billions in investment and deepen access to global capital for the country.

The country also signed on Nov. 15 the world’s largest trade deal, the Regional Comprehensive Economic Partnership (RCEP), with the other nine ASEAN country members: Australia, China, Japan, South Korea and New Zealand. The partnership represents almost one-third of the global economy.

Faisal added that the rupiah may average around 14,085 per US dollar this year, appreciating from last year’s average of 14,543 against the greenback.

However, if there are delays in the availability and rolling out of the COVID-19 vaccine, leading to a second wave of infections in Indonesia and, thereby, delaying economic recovery, investors’ sentiment might turn negative, Fitch Solutions head of Asia country risk Anwita Basu told The Jakarta Post.

“Rising risk aversion could lead to a significant sell-off in Indonesian assets and, thereby, the rupiah,” she said.

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