AN ECONOMIC OVERVIEW OF THE EMERGING MARKETS

Bloomberg survey outcome recently showed that the emerging markets of Asia and Africa dominated global growth this year and was predicted to above global growth projection for the next 2 years.

Among 20 countries of high economic growth, Indonesia was in 5^th position. This survey estimated world’s economic growth was 3.2% this year against 3.3% in the past 2 years.

The growth figure were dominated by 20 countries, i.e. China, the Philippines, Kenya, India, Indonesia, Nigeria, Malaysia, Peru, Thailand, Uni Emirates, Kazakhstan, Colombia, Saudi Arabia, Taiwan, turkey, South Korea, Poland, Mexico, Ireland and Singapore. Top five countries contributed around 16% to global GDP and this year 5 countries scored growth of above 5%.

For comparison, Britain’s and America’s economy, which when combined constituted around a quarter of global economic growth, were predicted to grow by 3.1% and 2.6 respectively this year. Euro zone would probably only expand by around 1.2%.

According to survey, the result of which was released last Tuesday (26/2), china was still G-20 member with fastest growth although not as fast a few years ago. China’s economy grew by 7.4% in 2014 last and was predicted to slow down to 7% in 2015.

US economic growth in 2015 was around 3% even in the USD soared up to highest level in one decade if the Fed increased interest for the first time since December 2008. As known the Fed’s interest had been close to zero percent since December 2008.

Unfortunately US economy grew slower than expected in quarter 4 2014, being suppressed by measly growth in reserves and increasing import.

Revision of GDP expansion was slightly better than expectation of 2.1% after strengthening by 5.0% in quarter 3.

The latest economic data had it that increase of US bank interest would drain fund of the emerging market, but that’s not what happened. Unexpected stimulus in Europe and Japan, triggered investors to invest State’s Promissory Notes in India, Indonesia and South Korea.

Capital inflow also axed average return of state’s bonds of the emerging markets by 21 basic points to become 4.20%, lower than the average return in general at 4.20%. although fallen world’s oil price had helped budgeting process in developing countries, political and corporate scandal in Brazil and Argentine had faded market trust in Latin America, while crisis in Ukraina had triggered capital exodus from the Middle East.

Unlike the emerging markets of Europe, Africa and Latin America, the emerging market of Asia was relatively free of political uncertainty. Although increase of US bank rate influenced the emerging markets, analysts still see the good performance of Asian bonds.

Index of Bloomberg showed Asian bonds in local currencies yielded 2.3% this year, led by Indonesia at 8.4% and China 2.6%, bonds of Latin America lost minus 0.4% while in Europe, the Middle east and Africa dropped by 0.8%

According to data of EPFR Global, by February 20 last Asian bonds had collected fund of USD 1.1 billion this year, against capital outflow worth USD 654 million the same period last year. South America collected fund of USD 44 million while Europe, the Middle East and Africa absorbed USD 48 million.

Contract at the Security Exchange indicated chances were 59.5% that the Fed would increase interest before end of October, higher than last January at 46.5%, impact of the Fed and end of the tightening cycle had diminished at least in the sort run.

Asia was some sort of safe haven among developing countries. However as a whole the emerging market was not doing well. In South America, cases of NPL would increase as many bonds were energy related or linked to access of corruption.

The economic prospect itself was rated as still good. Moreover BI rated that structural reformation was the key solution for Indonesia to jack up higher economic growth with financial stability being under control. This was related to BI’s main mission to managed Rupiah value and control inflation.

Only trouble was that Indonesia’s economy was still highly dependent on import so high economic growth might worsen deficit in current transaction. The need for capital goods propelling economy was still fulfilled by import, while the structural reformation itself must encompass efficiency through betterment of the logistics system, reformation of the fiscal (as shown by reduction of subsidy), human resources development, and reformation of the bureaucracy.

The BI policy mix was based on overall consideration. This included the monetary indicator, risk potential, macro prospect and economic growth, balance of payment and the financial condition.

BI saw that Indonesia’s economy was still reliant on foreign investment (PMA). Under such circumstances it became imperative to maintain economic stability to create a condusive investment climate for long term investors.

It would be advisable to manage national economy with prudence, for example by managing deficit in current transaction. Foreign investors must be attracted with appetizing interest rate. All in all Indonesia’s fundamental economy was still appealing to foreign investors.

One of the monetary indicators noteworthy was forex reserves. The forex reserves managed by the Central Bank itself was posted at USD 114.25 billion per January 30, 2015; enough for financing import of around 6.5 months or longer than the standard 3 months. Indonesia as one of the attractive investment destination in Asia’s emerging markets must be able to maintain her comparative advantage to attract more investors. (SS)

Business News - March 11, 2015