Foreign Investors Drive Surge in Indonesia’s Balance of Payments Surplus

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In a remarkable turn of events, Indonesia’s Balance of Payments (NPI) has experienced a significant surge in surplus during the first quarter of 2023, as foreign investors inundate the country’s financial markets.

The Central Bank of Indonesia, Bank Indonesia (BI), has reported an impressive BOP surplus of US$6.52 billion for the first quarter, marking a substantial increase compared to the previous quarter’s surplus of US$4.73 billion.

This surplus stands in stark contrast to the deficit of US$1.82 billion recorded during the same period in the previous year, reflecting a positive shift in the country’s financial landscape.

The surge in the BOP surplus can be attributed to the influx of foreign investors who have been enticed by the opportunities presented in Indonesia’s financial market. This is evident in the surge of financial transactions that have taken place.

Bank Indonesia highlighted the impact of a more stable financial market, stating, “The easing uncertainty in the financial market has driven an increase in foreign capital flows into the domestic government securities market, resulting in a surplus in portfolio investments.”

The return of foreign investors to Indonesia’s financial market aligns with the positive trajectory of the country’s domestic economy, which has shown signs of improvement, including a slowdown in inflationary pressures.

Analyzing the financial transactions during the first quarter of 2023, a surplus of US$3.38 billion was recorded, representing a significant shift from the deficit of US$120 million witnessed in the preceding quarter.

The surplus achieved during the January-March period marks the highest level since the third quarter of 2021, underscoring the resurgent confidence in Indonesia’s financial landscape.

The surplus in financial transactions has been fueled by a rise in both direct investment and portfolio investments, demonstrating the attractiveness of Indonesia’s investment climate.

Direct investment recorded a surplus of US$3.4 billion during the first quarter, showcasing growth compared to the previous quarter’s surplus of US$3.16 billion. This increase indicates a heightened interest from foreign investors in long-term investments within Indonesia.

Similarly, portfolio investments demonstrated a surplus of US$3.02 billion during January-March 2023, highlighting a significant reversal from the deficit of US$1.72 billion in the previous quarter. This surplus not only marks a substantial improvement but also breaks the trend of deficits witnessed over the past five quarters.

The driving force behind this surplus can be attributed to the considerable number of foreign investors eagerly acquiring Indonesian government bonds (SUN). Inflows of foreign capital into rupiah-denominated SUN reached an impressive US$3.6 billion during the first quarter of 2023, surpassing the previous quarter’s figure of US$1.6 billion.

As a result of these substantial investments, foreign ownership of SUN surged to 17.6% by the end of March 2023, compared to 17% at the end of December 2022, reflecting the growing trust and confidence of foreign investors in Indonesia’s financial instruments.

However, it is worth noting that foreign investors have shown a tendency to sell private bonds, with a net sell amounting to US$0.3 billion during January-March 2023.

In the stock market, foreign investors exhibited a net buy of US$0.2 billion during the first quarter of 2023, marking a significant contrast to the net sell of US$1.3 billion observed in the previous quarter.

These positive developments in financial transactions have played a crucial role in maintaining a robust performance for Indonesia’s Balance of Payments, even in the face of a narrowing current account surplus.

The surge in the BOP surplus signifies a renewed sense of confidence among foreign investors, showcasing their growing interest in Indonesia’s financial market. This bodes well for the country’s economic growth and stability, further solidifying Indonesia’s position as an attractive destination for foreign investments in the Southeast Asian region.