Reaching US$1.9 Billion, Foreign Capital Inflows Record an Upward Trend

Rupiah and US Dollar

The flow of foreign capital into Indonesia shows no signs of slowing down as the country continues to attract substantial investment. Bank Indonesia, the country’s central bank, has reported that foreign capital inflows in the form of portfolio investments have been steadily increasing, providing a positive outlook for the investment climate in the nation. This trend is particularly encouraging considering that Indonesia is heading into a politically charged period leading up to the 2024 general elections.

According to Governor Perry Warjiyo, as of May 26, 2023, foreign capital inflows in the form of portfolio investments have already reached an impressive $1.9 billion.

This figure reflects a continuation of the positive momentum observed in the first quarter of the year. The Bank Indonesia Quarterly Monetary Policy Report for Q1 2023 further confirms this upward trend, indicating that foreign capital inflows in the form of portfolio investments amounted to a substantial $4.7 billion during that period. Perry Warjiyo expressed confidence in the investment appetite for Indonesia, noting that investor enthusiasm remains robust.

“Our records indicate that foreign capital inflows are continuing into the second quarter of 2023,” Perry stated during a recent meeting with the XI Commission of the Indonesian Parliament. This demonstrates a sustained interest in investing in the country, driven by the positive economic prospects and investor confidence in Indonesia’s future.

Furthermore, international rating agencies such as Standard and Poor’s (S&P), Moody’s, and Fitch have maintained Indonesia’s Sovereign Credit Rating at the investment grade level. This reaffirms the trust investors have in Indonesia’s economy and contributes to the overall positive sentiment surrounding the country’s investment landscape.

A significant contrast can be observed when comparing the current period with the 2019 election cycle. Since 2018, foreign capital inflows into Indonesia have been limited. In the first quarter of 2018, the financial sector experienced a relatively constrained flow of capital, with a modest net inflow of portfolio investments totaling only $250 million. This amount pales in comparison to the $7.55 billion recorded during the same period in the previous year. However, the situation has evolved, and the upcoming 2024 elections are anticipated to have a different impact on investor sentiment.

Febrio Nathan Kacaribu, the Head of the Fiscal Policy Agency (BKF) at the Ministry of Finance, shared his insights on the changing dynamics. He emphasized that investor sentiment towards the 2024 elections differs from previous electoral cycles, with many investors now showing a stronger inclination to invest during this period.

The increased interest is evident in the vibrant market for initial public offerings (IPOs) on the Indonesia Stock Exchange (IDX). The IDX has seen numerous new issuers and a substantial influx of investment, totaling an impressive $2.1 billion directed towards IPOs.

This surge in IPO activity has surpassed the levels observed in major global financial centers such as Hong Kong and Japan during the first quarter of 2023. It serves as a strong signal that investment interest remains high, despite the upcoming elections from this year to the next. Febrio emphasized that the potential impact of the 2024 elections extends beyond the investment sphere, projecting a positive contribution to economic growth and an increase in consumer spending.

The involvement of millions of people and the wide range of activities during elections create a festive atmosphere that stimulates consumption.

Febrio highlighted that the government has already allocated substantial budgets for 2023 and 2024, amounting to approximately Rp 25 trillion for 2023 and Rp 24 trillion for 2024. This investment will have a significant impact on boosting the country’s Gross Domestic Product (GDP) figures.

The ongoing confidence of investors in the Indonesian economy is closely tied to the government’s effective management of the economy over the past three years. This period has seen steady economic growth, averaging around 5%, and a successful return to a state budget deficit below 3% after the challenging period of the Covid-19 pandemic.