Indonesia’s economic conditions have recently been in the spotlight amid a weakening Rupiah exchange rate, which touched a record low near Rp 17,900 per US dollar, and pressure on the Jakarta Composite Index (JCI). This situation has raised concerns among market participants about the country’s economic stability and future investment prospects.
Dzikri Firmansyah Hakam, Ph.D., a lecturer at the School of Business and Management, Institut Teknologi Bandung (SBM ITB), assessed that the current market conditions have not entered a panic-selling phase. He believes that the outflow of foreign funds from Indonesia is primarily due to rational investment decisions influenced by global conditions, particularly the increasing appeal of investment opportunities in the United States.
“What’s happening now isn’t panic. It’s more about logical investment decisions because capital flows are indeed in large numbers into the United States, and almost all emerging markets are experiencing similar conditions,” Dzikri explained.
He explained that one of the main causes of the outflow of foreign funds is the narrowing yield spread between US and Indonesian government bonds relative to historical levels. Currently, the yield on 10-year US bonds is around 4.5 percent, while Indonesia’s stands near 6.9 percent. Although the gap remains wide in absolute terms, it has compressed compared to previous years, when the spread offered a far more attractive premium for holding Indonesian assets.
According to him, this situation has led global investors to reconsider the risks of investing in developing countries like Indonesia, especially amid pressure on the Rupiah.
“Investors see the spreads getting narrower than before, while the risks of emerging markets and Rupiah depreciation remain. As a result, a lot of global funds are flowing back into the United States,” he said.
Bank Indonesia had previously raised its benchmark interest rate by 50 basis points to 5.25 percent. Dzikri believes this move represents a trade-off between maintaining Rupiah stability and sustaining national economic growth.
“If interest rates are raised too high, the public and businesses will hold back on consumption and investment due to the increased cost of funds. So, there is indeed a trade-off between maintaining economic growth and strengthening the Rupiah,” he said.
However, Dzikri believes the current condition of the Indonesian stock market still holds attractive opportunities, particularly in the banking sector. He assessed that several domestic banking stocks were undervalued and offered high dividend yields.
“Many Indonesian banking stocks have double-digit dividend yields, while their valuations are still cheap,” he explained.
Furthermore, Dzikri also highlighted the changing structure of the Indonesian capital market, which is now considered no longer entirely dependent on foreign investors. While foreign ownership previously dominated the domestic stock market, its share has now been significantly reduced.
“Previously, the JCI movement was heavily controlled by foreign investors. Now, their share has decreased significantly, so the space for foreign investors to influence the market is increasingly limited,” he explained.
He believes this situation presents a crucial momentum for domestic investors to strengthen their role in the Indonesian capital market. According to him, domestic investor confidence is a key factor in maintaining the JCI’s stability in the future.
“What needs to be maintained now is the trust of domestic investors. As long as domestic investors maintain confidence in the Indonesian market, I think the room for the JCI to decline will be increasingly limited,” he said.
Dzikri also highlighted President Prabowo Subianto’s one-stop export policy. This policy is likely to increase the government’s dominance over the national export system. However, according to Dzikri, this policy emerged due to the practice of under-invoicing and misinvoicing, which has been causing significant leakage of state foreign exchange. “Especially in commodity sectors such as coal, palm oil, and precious metals. So, the real intention of this policy is to improve governance,” he said.
He added that the policy could have a positive impact if implemented transparently and with proper oversight. According to him, the most important thing is to ensure that field implementation does not create new moral hazards.
“Don’t let the intention to eradicate leakage actually create new abuses,” Dzikri emphasized.
