Indonesian Currency is Declining – is now the Best Time to Invest in Rupiah?
Since 1997, Indonesia’s national currency has had multiple revaluations because of inflation. Even though Indonesian currency is declining, the Indonesian rupiah fares much better than other emerging nations because of the country’s consistent focus on long-term economic development planning. Is now the best time to invest in the rupiah?
THE PROS AND CONS OF INVESTING IN INDONESIAN CURRENCY
PROS
1. Since the Indonesian currency is at his weakest point in 20 years, this will increase exports.
2. The currency of Indonesia rests on the strength of the largest economy in Southeast Asia.
3. The country’s central bank will stabilize the Indonesian currency rate.
4. The Indonesian currency has a record of impressive historic growth and poses less risk than currencies from other emerging markets.
CONS
1. The Indonesian currency faces the risk of inflation.
2. Geopolitical risks might undermine the value of Indonesia currency.
3. Political unrest could affect the Indonesian rupiah currency.
4. Widespread business corruption could affect the currency of Indonesia.
Last year, the Indonesian currency fell to its lowest point against the United States dollar. In fact, this was the lowest in 20 years and it prompted Indonesia’s central bank to intervene in government bonds and the foreign exchange markets. It could be the perfect time to invest in Indonesian currency, though there are also reasons for using caution.
The Pros and Cons of Investing in Indonesian Currency
PROS
1. Since the Indonesian currency is at his weakest point in 20 years, this will increase exports.
Bank Indonesia has also raised interest rates to help stabilize the currency, raising its benchmark policy rate by as much as 5.75 percent, an increase of 25 basis points. A weaker rupiah means that the US dollar rises in value, so more dollars can buy more rupiahs. Since imports now appear far less expensive to foreign buyers, the country’s agricultural raw materials exports will increase.
2. The currency of Indonesia currency rests on the strength of the largest economy in Southeast Asia.
Indonesia has the biggest, most robust economy in Southeast Asia. As one of the most prominent emerging economies in the world, global economic reports now classify it as a new industrial country. By nominal GDP, it has the 16th largest economy in the world and by GDP (PPP) as the 7th largest economy in the world.
The world has recognized Indonesia has enormous economic potential, and in the years ahead, its focus on infrastructure development will continue to create a force multiplier effect on the economy.
3. The country’s central bank will stabilize the Indonesian currency rate.
Bank Indonesia is actively working to stabilize its currency against the United States dollar. Its central bank is monitoring its development in the global economy and crafting monetary policies to differentiate its economic turmoil from that of other emerging markets like Turkey.
Despite the fall in the currency’s value, the Indonesian economy remains resilient. The Indonesian government appears committed to structural reform, keeping inflation low, and economic growth stable.
4. The Indonesian currency has a record of impressive historic growth and poses less risk than currencies from other emerging markets.
During the 21st century, Indonesia performed well, even during times of economic crisis–like the global financial crisis in 2008. In fact, during that economic crisis, it was one of the few countries in the world to post economic growth two years later.
Indonesia has shown consistently strong historic growth and has a lower investment risk than many other countries in emerging markets. It’s an industrialized nation that offers foreign investors a high annual return.
Despite its current travails, the country still has plenty of economic potential. With a market capitalization smaller than many BRIC economies, it’s got plenty of room to grow. All things considered, its overall economic momentum is not likely to slow down soon.
CONS
1. The Indonesian currency faces the risk of inflation.
In 2018, the Indonesian currency was hard hit by the drop in Turkey’s currency value. The crisis started in September, and by August, inflation was as high as 18 percent. This financial disaster had a ripple effect on foreign exchange valuations and affected the Indonesian rupiah, which fell to an all-time low and created an Asian financial crisis. This economic crisis also increased Indonesian debt to China.
2. Geopolitical risks might undermine the value of Indonesia currency.
Since Indonesia is in Southeast Asia, there is considerable political risk from developed countries like the United States and the European Union. The Indonesian economy has to deal with uncertainties arising from the global trade tensions between the United States and China. Buffeted on one side by the rising trade protectionism in the United States and on the other side by China’s economic slowdown, Indonesian exports will lose momentum and this will have an adverse effect on the country’s foreign exchange revenues.
3. Internal problems could affect the Indonesian rupiah currency.
On April 17th, massive political unrest rocked Indonesia only a month after Joko Widodo had won re-election to become the Indonesian President. Despite earning 55.5 percent of the vote, his opponent, Prabowo Subainato, accused election officials of fraud and legally challenged the results.
Consequently, in Jakarta, the capital of Indonesia, the police clashed with demonstrators who protested the results of the presidential election. The governor of the city, Anies Baswedan, an ally of the defeated candidate, Mr. Subainato, reported that the anti-riot police had injured 350 people. Tito Karnavian, the Indonesian National Police Chief, said the rioting had killed six people.
Another pressing issue is the widening oil spill off the country’s coast. This not only increased oil prices but has also caused economic losses and environmental damage. The Indonesia Borneo oil spill is now spreading across an area that is larger than the city of Paris, and it is now heading into the open ocean.
4. Widespread business corruption could affect the currency of Indonesia.
Widespread corruption limits the success of the business community. Since extensive bribery is common, this can be problematic for foreign investors because government officials exploit legislation to extract illegal payments from new companies. Government officials generally expect companies to pay bribes when registering a business, when filing tax reports, and when getting permits or licenses. Local government officials get away with such practices because of weak oversight. Although there are many laws against criminal acts of corruption, active and passive bribery, abuse of office and financial extortion, the corrupt judiciary system rarely enforces this legislation.
What Is Indonesian Currency?
Here is a quick overview of the Indonesian rupiah, which could be useful if you want to buy Indonesian money for investments or need to arrange a money transfer for business transactions. It’s also useful to know if you plan to visit and want to understand the local currency to estimate how much travel money you’ll need.
Besides paying with cash, you can access ATMs and use your credit card to make purchases. The purchasing power of your Indonesian money will depend on the daily rates. You will need a currency converter to work out the purchasing power that calculates US currency to Indonesian rupiah.
The official currency of Indonesia is the Rupiah, named after the Indian rupee. The legal tender comes in the form of banknotes and coins. The banknote denominations are Rp 2,000, 5,000, 10,000, 20,000, 50,000, and 100,000 while the coin denominations are Rp 1,000, 500, 200, and 50.
US Dollar to Indonesian Currency Foreign Exchange Rate
At present, the Indonesian currency exchange rate is favorable for US foreign investors. The USD to IDR foreign exchange rate is 1 USD equals 14,301.50 IDR.
Analysts expect the dollar to rupiah exchange rate to go up by +4.34% a year. So, in a year, it might be around 14,880.10. Statistically, you could do well if you invest in a USD/IDR Forex pair. Since the dollar to rupiah exchange rate is also not likely to fall or drop in the next five years, it could be a long-term investment, too. Analysts are now talking about future rate hikes leading to 1 USD to IDR 17,379.20.
Even if these projected increases don’t happen as planned, based on current trends, an investment could still be profitable. Now would be a good time to buy Indonesian currency, but, of course, when to buy and sell foreign currency depends largely on your FOREX strategy.
Is Now the Best Time to Invest in the Rupiah?
When reviewing the history of money, the Indonesian rupiah fares well. Admittedly, when you read the news, you’ll see that there’s heightened global uncertainty for investing in SE Asia. Yet, despite the negative business press, Indonesia’s economic outlook looks good. The reason its looks so positive is that domestic demand is driving economic growth. Although the country faces many new political, economic, and social issues, as well as geopolitical risks, it continues to attract robust investments because a strong job market supports stable inflation and economic recovery.
Indonesia is a solid performer. Throughout the 2008 financial crisis, it did well, and it continues to be an attractive investment. Investors can do well through the foreign exchange market, through exchange-traded funds, or through business investments. The Indonesian currency and assets are worth considering as foreign investments to add to your financial portfolio.