Indonesian economy faces headwinds

Recent losses in Indonesia's stock and currency markets reflect uncertainties over the country's economic prospects this year as concerns over local policies, US tariffs and falling commodity prices weigh on Southeast Asia's biggest economy, analysts say.

The rupiah fell to a record 16,642 against the dollar during early trade on Tuesday, the weakest level for the Indonesian currency since the Asian financial crisis in 1998. It recovered in the afternoon thanks to intervention by the Bank Indonesia, the country's central bank.

Earlier on March 18, a steep sell-off in equities forced the Jakarta Stock Exchange to temporarily halt trading after the benchmark Jakarta Composite Index tumbled 7.1 percent — its biggest intraday slump since September 2011. The index recovered in the afternoon session, but it still closed more than 3 percent lower. The losses were extended in the following week, with the index closing 1.55 percent lower on Monday.

The government has set a 5.2 percent GDP target for this year. However, President Prabowo Subianto is aiming for an 8 percent growth during his first term that ends in 2029.

Indonesia is facing "a lot of headwinds", said Alicia Garcia-Herrero, chief economist for Asia-Pacific at the French investment bank Natixis.

Apart from concerns over the management of the sovereign wealth fund Danantara and the huge household debt, the Indonesian economy is taking a hit from weak global commodity prices and United States President Donald Trump's decision to slap punitive tariffs on major trading partners, Garcia-Herrero said.

Indonesia is one of the world's biggest commodity exporters, and earnings from mineral and agricultural exports have long propped up its economy.

However, in the first two months of this year, Indonesia's tax revenues fell by more than 30 percent to 187.8 trillion rupiah ($11.3 billion). Anggito Abimanyu, Indonesia's deputy finance minister, said earlier this month that a decline in coal, oil and nickel prices is one of the key reasons behind the lower revenues.

The "accumulation of the various negative sentiments, which are global and domestic, has contributed to the fall" of the main Jakarta stock market index, said Primus Dorimulu, chief communication officer of the Indonesian Chamber of Commerce and Industry.

Rumors that the widely respected Indonesian Finance Minister Sri Mulyani Indrawati could resign from her post have also hurt market sentiment, he said. The rumors have been dispelled by the Presidential Communications Office.

Josua Pardede, chief economist of Permata Bank in Jakarta, said the market reaction to Danantara has been "relatively mixed, with ongoing concerns about its governance".

"However, as the government has revealed the management and advisory team, I believe public caution may start to ease."

Contact the writers at prime@chinadailyapac.com

Leonardus Jegho is a freelance journalist for China Daily.