NEWS

Throughout 2016, the rupiah exchange rate recorded positive performance amid external sentiment that often emerged. On (12/30/2016), the rupiah exchange rate closed at Rp 13,436 or strengthened (appreciation) around 2% of the US dollar exchange rate with maintained volatility. These results place the rupiah as one of the best exchange rates in the Asia Pacific region.

Not only that, the performance of the rupiah is better than the assumption of the 2016 APBN-P at the level of Rp 13500 per US dollar and compared to the performance of 2105 which experienced a weakening of 10.92%. At least there are several factors that drive the strengthening of the rupiah.

First, macroeconomic performance that was quite stable, such as economic growth at the level of 5%, inflation at the level of 3.02% (yoy), and the current account deficit (DTB) which was at a healthy level.

The maintained macroeconomic performance is inseparable from the government's efforts to improve and strengthen the structure of the economy, through the presence of economic packages.

Since September 2015-December 2016, 14 economic packages have been born that are expected to improve the fragility of various sectors, especially in the real sector.

Good macroeconomic stability cannot be separated from good coordination between the authorities in the financial sector (BI, OJK, LPS). Throughout 2016, BI was quite good in maintaining exchange rate stability with its various policy tools, both through interest rate policies, payment system policies, and macroprudential mix policies. BI is also quite active in maintaining the rupiah in the market through intervention, both through the foreign exchange market and the Government Securities market (SBN).

In addition, the FSA also actively oversees the financial sector. OJK conducted a variety of regulatory relaxation so that the financial sector was able to pass various pressures.

Both liquidity flows in the financial market and the real sector are quite positive. Throughout 2016, foreign investors recorded a net buy in the stock market (equity market) of Rp 15 trillion. Better than in 2015 which recorded a net sell of Rp 23 trillion.

Similar conditions also occur in the Government Securities market (SBN). Foreign investors recorded a net buy of Rp 101.2 trillion. Better than in 2015 amounting to Rp 97 trillion.

Likewise, liquidity flows into the real sector through Foreign Direct Investment (FDI). During January-September 2016, the value of FDI reached Rp 453.4 trillion or grew by 13.4% (yoy).

The flow of liquidity also originates from a tax amnesty policy. During July-December 2016, the total ransom funds received by the government reached Rp 103.26 trillion with a total value of assets repatriated and declared as Rp 4,397.49 trillion.

The three conditions are the supply (demand) and demand (demand) of foreign exchange. Throughout 2016, the pressure of demand is not too alarming. Government and corporate external debt with short tenors is not too significant compared to long tenors.

In addition, the demand for exports and imports also did not grow significantly. This cannot be separated from the condition of sluggish global economic growth and domestic economic growth which tends not to grow significantly yet. Throughout 2016, export and import growth still tends to contract.

On the other hand, from the supply side, foreign exchange needs are met from the trade sector (exports and imports). During January-November 2016, the trade balance surplus reached $ 7.79 billion.

In addition, the supply also comes from foreign debt (ULN), both carried out by the government through the issuance of foreign currency Government Securities (SBN), both conventional and Sukuk and conducted by Bank Indonesia. This foreign exchange supply also boosted foreign exchange reserves.

As of December 2016, the value of Indonesia's foreign exchange reserves reached $ 116.4 billion, which was sufficient to finance 8.4 months of import and government external debt needs.

In addition, hedging policies that have been carried out by a number of companies, especially SOEs that use large amounts of foreign exchange, such as PT Pertamina (Persero) and PT Perusahaan Listrik Negara (PLN) (Persero) also have a positive impact on the rupiah.

In addition, Bank Indonesia Regulation (PBI) No 17/3 / PBI / 2015 concerning the obligation to use rupiah in the Unitary Republic of Indonesia also contributes to the strengthening of the rupiah.

The four external sentiments were not as bad as expected. Throughout 2016, quite a lot of external sentiments have emerged, such as an increase in the US benchmark interest rate, the exit of the United Kingdom from the European Union, and the election of Donald Trump as the 45th US President.

This sentiment is very effective in inducing capital outflows from the financial sector, especially now that foreign investors dominate ownership of assets in the domestic financial market.

However, the rupiah was quite fortunate, because the sentiment that had been feared by many parties would cause a large shock not as bad as expected.

Maintaining Volatility

With the free foreign exchange regime and the floating exchange rate system adopted by Indonesia today, making the management of the rupiah exchange rate difficult and challenging.

Moreover, with the increasingly integrated global financial markets with increasingly complex and complicated financial instruments. The still sluggish world economy that drives monetary policy authorities in developed countries must implement policies that are not conventional and outside the standard (negative interest rate policy).

This external condition will trigger the exchange rate volatility. There is no point, an exchange rate strengthens if the volatility moves wildly. What is expected is a stable exchange rate. However, if volatility moves wildly, then this will be very detrimental to the economy.

For this reason, the challenges that will be faced by BI to maintain the rupiah exchange rate throughout 2017 are not easy. In addition to maintaining a positive rupiah performance, BI is also demanded to be able to maintain rupiah volatility so that it does not move wildly.

For this reason, BI cannot work alone. On the contrary, the government, BI, OJK, and LPS must further strengthen coordination. However, the movement of the rupiah exchange rate is not determined by one variable, but by many interrelated variables.

For this reason, the government is expected to be consistent in carrying out and accelerating the implementation of economic packages, so that it is expected that there will continue to be a process of improvement in the structure of the economy. If the economic structure is getting better and stronger, it is expected to make a cushion to withstand the onslaught from the external side.

In addition, the authority in the financial sector is expected to produce credible, accurate and measurable policies. This is expected to maintain positive perceptions from investors in the financial markets.

The deepening of the domestic financial sector must also continue to be done consistently, through the presence of more diversified financial sector products, encouraging the growth of domestic investors, especially retail investors.

The deepening of the financial sector is expected to be able to balance the dominance of foreign investor ownership. So, when external sentiment rises, it does not hit the rupiah exchange rate induced by capital outflows.

In short, if the things above can be carried out well, then in 2017, even in the midst of world economic conditions that are still full of uncertainty, especially from the US, when the Fed hoists the benchmark interest rate, the rupiah exchange rate can still continue its performance as last 2016.

In fact, there is a better chance of maintained volatility, if the government can also manage political stability and security. After all, 2017 is a political year.