Indonesia Finance Minister Says Monitoring Economic Impact of Geopolitics

GLOBAL ECONOMY - JAKARTA. Indonesia needs to anticipate any impact on the domestic economy of the recent escalation in geopolitical tensions in the Middle East and delays in U.S. monetary easing, which will also affect the government's budget, its finance minister said on Friday.

Sri Mulyani Indrawati told a press conference Middle East conflict could disrupt supply chains, especially in the oil and gas sector, and affect commodity prices, which then would affect tax payments from Indonesia's commodity exporters.

Expectations of U.S. interest rates staying higher for longer have also triggered capital outflows that impacted Indonesia's financial markets, she said.

"Global risks and tensions are negatively impacting the global economy and financial markets, and we need to anticipate the impact to commodity prices, interest rates and capital flows," the minister said.

She also noted, however, that Indonesia's economy was doing well, with growth in the first quarter forecast at 5.17% on an annual basis, accelerating from 5.04% in the previous three months, partly due to stronger household spending during the fasting month of Ramadan, which started in March.

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The government's budget still booked a surplus of 8.1 trillion rupiah ($500 million) in the January-March period, or 0.04% of GDP, narrowing from a surplus of 0.11% of GDP recorded at the end of February.

Total revenue fell 4.1% on a yearly basis in January-March to 620 trillion rupiah, while total spending rose 18.4% to 611.9 trillion rupiah.

"The numbers as of March were on track, but we continue to assess the possibility of adjustments due to global landscape dynamics," Sri Mulyani said.

Head of the ministry's debt office, Suminto, told the same conference that market volatility has not disrupted Indonesia's bond issuance plans and management of existing debt.

"The rise in yields to 7%-7.10%, aligned with the hike in Bank Indonesia's policy rates, are improving the competitiveness of our bonds, and we have seen capital inflows returning in the past week," said Suminto, who goes by one name, referring to yields of the benchmark 10-year bonds.

Indonesia's central bank on Wednesday delivered a surprise rate hike to support the rupiah currency.