Fitch Ratings Reminds about Risk of Volatility in Indonesia's Capital Markets
Global credit rating agency Fitch Ratings reminded the investor community about the ongoing risk of a sudden reversal of capital inflows in Indonesia. In the first two months of 2014, capital inflows have been strong, reaching a total of USD $2.3 billion, a 16 percent increase from the same period last year, backed by renewed confidence in Indonesia's economic fundamentals as the current account deficit and inflation have moderated since the end of last year. However, several risks are looming causing potential volatility of capital flows.
Although Indonesia's current account deficit has improved markedly since its record high of USD $9.9 billion in the second quarter of 2013, it can widen again in the quarters ahead because of the implementation of the ban on unprocessed mineral exports in January 2014. Moreover, despite more certainty about the winding down of the Federal Reserve's quantitative easing program since the tapering accouncement was made in December 2013, portfolio investments in emerging markets are still susceptible to volatility due to changing expectations about the pace of the winding down.
Fitch Ratings also predicts that many Indonesian companies will need to refinance this year. According to Baradita Katoppo, Country Head of Fitch Ratings in Indonesia, a lot of debt will mature in 2014.
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