Nusa Dua, Bali – International Monetary Fund (IMF) says that global economy risks are escalating in short-term, reflecting current pressures in developing countries. This mirrors trade tension that remains ongoing.
Financial Advisor and Director of the Monetary Department and Capital Market of the IMF, Tobias Adrian, said “Despite some reasons for making us optimistic, this isn’t the time for us too easily satisfied.”
He delivered the statements during a press briefing on Global Financial Stability Report (GFSR) in October 2018 at Bali International Conventional Center (BICC) in Nusa Dua, Bali, Wednesday, 10 October 2018. This is the venue where which the Annual Meetings of the IMF-World Bank Group is on progress.
He added that this was the time for taking more pro-active measures to maintain financial stability and not to get too easily contented.
As an illustration, war tension between the US and China has impacted investors’ trusts in China. As such, the government of China has been taking serious, prudent balance efforts to grow its economy from high level to qualified rise.
On the other hand, the financial condition of the US is relatively liquid yet the situations in emerging markets, like Indonesia, are predicted to be tighter. According to Adrian, emerging markets, like Indonesia, have flexible financial exchanges which are good factors for the financial condition in the countries.
“As a developing country, Indonesia has a strong macro economy performance. This is because of the flexible exchange rate,” he said.
Adrian added that Indonesia’s financial market was generally strong despite corrected economic growth projection to 5.1 percent from 5.3 percent. Ongoing depreciation on rupiah may instead invite many investments coming in the country’s financial market.
“Rupiah depreciation may make investment at the financial market becomes more attractive,” he said.
This is possible thanks to lower cost that must be spent by would-be investors, while they may obtain higher outcomes. Rupiah currently stands between 15,200 and 15,300 per US dollar.
Indonesia definitely needs to stabilize rupiah exchange rate. Adrian believes Bank Indonesia (BI) will intervene to make the currency remains stable. He added that foreign exchange liquidity in Indonesia was very sufficient to make the economy of Indonesia and the rupiah exchange rate at steady level.
“Very good liquidity leads to stable market situation,” he said.
Adrian yet reminded that the good situations must not make us too easily happy given some potentials requiring attention from us.
“Our analysis shows that in the medium term, there is 5% probability that developing countries will see capital outflows in their debt portfolio exceeding US$100 billion (IDR1,521 trillion),” he said.
The amount is generally in line with capital outflows that happens during a crisis. Adrian said that tightening conditions since April 2018 has been happening because of the stronger US dollar, increasing politic and policy risks as well enhanced trade tension.
Policy normalization of the central bank of the US or Federal Reserve is predicted to keep pressuring foreign capital flows for developing countries. The IMF projects the Fed’s policy will cause bigger amount of capital outflows up to US$100 billion until the end of 2019, aside from US$20 billion of capital already flowing out.
Capital inflows will go down to US$50 billion in 2018 and to US$40 billion in 2019 should global condition worsens.
The lowered foreign capital inflows will challenge countries that highly depend on foreign financing. (3x3)