DBS: Indonesia's Economic Fundamentals Are Better Now Than 2013

Illustration. (Irfan Meidianto/VOI)

JAKARTA - DBS Group Research Senior Economist Radhika Rao believes that Indonesia's economic fundamentals are now better than during the 2013 taper tantrum, when foreign capital in developing countries, including Indonesia, was absorbed by rising US government bond yields.

"This shows that although there are some impacts from emerging market assets caused by a taper, this (factor) does not necessarily become significant after the volatility," said Radhika Rao in the DBS eTalk Series, quoted from Antara, Friday, June 25.

The taper tantrum is a phenomenon that originates from the indications of the authorities in the United States that will reduce the value of buying assets such as bonds, and reduce the amount of stimulus (quantitative easing/QE) that has been carried out to inject liquidity in the financial market.

As a result, the market is worried about the signal to stop the stimulus from the US Federal Reserve. This concern has made investors look for safe steps by turning their capital into financial instruments in the US, and leaving the turmoil in developing countries. The turmoil in the financial market due to the decline in the value of assets is what underlies the emergence of the term Taper Tantrum.

Radhika sees that the fundamentals of the rupiah exchange rate are better if they face turmoil due to capital outflows, such as the discourse that has emerged in recent times due to the Federal Reserve's gesture to respond to the pace of US economic recovery.

"In terms of the rupiah currency, Indonesia's fundamentals are better than in 2013 during the Taper Tantrum or soaring yields on US bonds," he said in an online seminar entitled Factoring Vaccination Distribution Into Economic Growth and Investment Mapping.

DBS, headquartered in Singapore, believes that Bank Indonesia will continue to maintain stability in the financial market, even though the central bank's attitude in recent times has led to accommodative policies to encourage economic recovery.

In addition, apart from the threat of a taper tantrum due to the US economic recovery, Radhika is of the view that Indonesia's economic recovery will depend on the realization of the COVID-19 vaccination. Public health must be prioritized so that Indonesia can quickly get out of the COVID-19 pandemic crisis.

"Vaccination clearly plays an important role in economic recovery efforts and investment mapping in the future. Indonesia's public finances have experienced a significant increase over the last two decades. Interest rate cuts will not happen, but financial market stability will be a priority," said Radhika.