Indonesia’s Deputy Finance Minister Bambang Brodjonegoro has told an investor conference in Jakarta that Indonesia should no longer be perceived as ‘fragile’ after a year of reparative fiscal policy. Brojonegoro was referring to a Morgan Stanley report published last year in which the Indonesia was included in a group of struggling emerging economies dubbed the “fragile five”.
“It is not just because I work for the government but because the latest economic indicators have showed significant improvement,” he told investors at an even organised by Fitch in the capital, according to the FT.
Other countries included in Morgan Stanley’s “fragile five” have not recovered as fast as Indonesia, in part because they did not respond as fast
According to Morgan Stanley, the “fragile five” economies – Brazil, India, Indonesia, Turkey and South Africa – all suffer from “high and rising current account deficits that make them more dependent on foreign capital flow”. They were therefore the worst hit countries when the American Federal Reserve started tapering its fiscal policies.
The deputy minister’s comments come after a year of aggressive action by the Indonesian central bank, in which it abandoned attempts to artificially hold up the rupiah, and instead allowed it to float. This led to a depreciation of close to 14 percent between May 2013 and February 2014, which in turn made Indonesian exports more competitive in the international market.
During this time, Indonesia’s current account deficit had stood at an alarming 4.4 percent of the GDP- over $10bn. It has since dropped to around $4bn, or two percent of GDP. Because of the favourable conditions, in December the country registered it’s highest trade surplus in over two years as merchandise exports rose by over 10.3 percent from the same time the previous year.
Other countries included in Morgan Stanley’s “fragile five” have not recovered as fast as Indonesia, in part because they did not respond as fast. Indonesia also raised interest rates more gradually than its counterparts, which combined with the natural currency devaluation led to an increase of 5.7 percent of the GDP in the fourth quarter.
Investors have also responded positively; the stock market is rallying, and the rupiah is no longer struggling against the dollar, having risen close to seven percent so far this year. Yields on 10-year government bonds are also performing well, having come down to eight percent from highs of 9.2 last summer.