BI cuts foreign inflow forecast amid global uncertainty

JAKARTA. Bank Indonesia (BI) has lowered its forecast for foreign fund inflows to the country’s financial market as worldwide jitters over global economic uncertainties may turn investors to safer options.

BI director for economic and monetary policy research Perry Warjiyo said capital inflows for portfolio investment in equity and debt markets might fall below US$10 billion this year from the previous forecast of between $12 billion and $13 billion. That compares with $13.26 billion last year, according to BI data.

So far this year, international funds have pumped Rp 8.5 trillion ($960.5 million) into the nation’s stock market and Rp 27.04 trillion into government debt papers after selling Rp 6 trillion in stocks and Rp 26.07 trillion in government bonds this month. Amid mounting worries of a global recession triggered by the Eurozone and the United States’ crisis, investors prefer cash or safer instruments such as US dollars.

Foreigners control more than 57 percent of publicly traded stocks at the Indonesia Stock Exchange and 32 percent of tradable government bonds in markets that analysts said had a high dependency on foreign investors. Consequently, economic uncertainties may trigger foreign fund outflows.

The recent foreign sell-offs have put pressure on the rupiah, which broke the Rp 9,000 psychological mark recently after trading between Rp 8,400 and Rp 8,900 throughout the year.

The benchmark Jakarta Composite Index plunged 16 percent since reaching a record peak in early August, while benchmark government bond yields spiked 10 basis points, sparking concerns of ballooning borrowing costs for the government and companies.

“In the first and second quarters, inflows were huge. In the third quarter, especially in the past one month, some long-term foreign investors sold government bonds,” Perry told reporters on Tuesday.

Foreign ownership in government bonds, which attracted the greatest inflows, slid from a record 35.54 percent at the end of July to 32.13 percent on Sept. 26.

“We have data showing what we call ‘real money’ investors who buy to stay, do not signal to sell government bonds as their confidence [in Indonesia] stays strong,” Perry said.

The country’s resilience amid the global economic slowdown since 2008 and low public debt level of 26 percent of the gross domestic product prompted top international ratings agencies to upgrade Indonesia’s sovereign credit rating to one notch below investment grade, with officials expecting an upgrade early next year.

Perry was certain that with a good sovereign rating Indonesia would remain attractive for foreign investment, which is expected to reach $16 billion this year. “So our overall balance of payment will still have a big surplus, leaving a possibility for our forex reserves to increase this year.” (Esther Samboh/The Jakarta Post)