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Economy in Brief

Indonesia: Capital Inflows
by Louise Curley  November 7, 2011

Indonesia has become a favorite of the international investment community. The stock market, Jakarta Composite (Aug. 1982=100) is currently at 3,778.28, more than three times its value on October 28, 2008, 1,111.39, its the low point in the 2008 world financial crisis. Its almost steady rise since then was intercepted by the current financial crisis in the Euro Area. The market declined from a peak of 4,193.46 on August 3 of this year to a low of 3,269.45 on October 4th, but it has since recovered and closed today at 3,778.24 pacific time. The first chart shows the daily price of the Jakarta Composite Stock Price Index over the past five years.

Foreign interest in the economy of Indonesia has resulted in sharply rising inflows of portfolio and direct investment. The sum of net direct and portfolio investment in Indonesia and risen from $3,751 million in the fourth quarter of 2008 to $8,442 million in the second quarter of 2011. Direct investment tends to be less volatile than portfolio investment. At the peak of the 2008 financial crisis in the fourth quarter, direct investment continued to flow into Indonesia, although at a reduced rate, but portfolio investment experienced a big outflow. Foreigners withdrew $4,004 million from the Indonesian stock and bond markets and Indonesians withdrew $467 million from foreign markets.

As a result of the increased foreign investment, income payments in the current account of the balance of payments have begun to rise as dividend and interest on portfolio investments and profits on direct investment have increased. The second chart show the trade, service and income components of the current account. The trade account, which has generally been positive, has been the principal component of the current account but the income component, which is generally negative, is beginning to rise in importance as can be seen in the second chart.

Millions of US$ Q2-11 Q1-11 Q4-10 Q3-10 Q2-10 Q1-10 Q4-08
Direct Investment 2700 3041 4241 1684 2298 2484 720
In Indonesia 5247 4789 4305 2875 3280 2911 1937
Abroad -2547 -1748 -66 -1191 -989 -427 -1217
Portfolio Investment 5742 3798 1436 4517 1089 6160 -4471
In Indonesia 6278 4109 1789 6110 1241 6569 -4004
Abroad -536 -311 -353 -1597 -152 -409 -467
Direct + Portfolio 8442 6839 5677 6201 3387 8644 -3571
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