Indonesian Rupiah Exchange Rate Update: Down 0.05% on Friday

Emerging Asian currencies experienced the largest weekly advance in a month as China seems to allow its yuan to resume appreciation as well as optimism about monetary easing in Europe (which will spur fund flows into higher-yielding assets). The jump of the yuan offset concerns about an escalating civil war in Iraq.

Domestically, some concern emerged after Hashim Djojohadikusumo, the brother and economic adviser of presidential candidate Prabowo Subianto, said that Subianto would advocate a doubling of Indonesia’s debt-to- GDP ratio to 50 percent if elected as next Indonesian president. This move would increase chances of default for Southeast Asia’s largest economy. Subianto would want to use the extra debt to boost economic growth (up to 10 percent year-on-year) which has declined to a pace of 5.21 percent (yoy) in the first quarter of 2014. The danger is that it brings economic costs as international credit rating agencies will need to downgrade the credit rating of Indonesia.

The other presidential candidate Joko ‘Jokowi’ Widodo has a more prudent fiscal strategy. Widodo intends to sell new bonds provided that the proceeds will be used for investments with a long term multiplier effect, such as infrastructure, education and health. Due to his more prudent approach, Widodo sees less than 6 percent GDP growth for Indonesia in the next two years. This year so far, the possibility of reform-minded Widodo becoming the next Indonesian president has given a boost to Indonesian bond and currency performance.

Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.27 percent to IDR 11,781 against the US dollar on Friday (13/06).

| Source: Bank Indonesia

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