Indonesia Records Decline in International Investment in Q2 2022

Bank Indonesia (BI) reported a decrease in Indonesia's net international investment position (IIP) in the second quarter of 2022. This decrease stemmed from a reduction in the foreign financial liabilities (FFL) position, accompanied by an increase in the foreign financial assets (FFA) position.

At the end of the second quarter of 2022, Indonesia's IIP recorded a net liability of US$270.4 billion (21.3% of GDP), lower than the net liability at the end of the first quarter of 2022, which stood at US$287.8 billion (23.6% of GDP).

BI explained that Indonesia's FFL position decreased due to the decline in the value of domestic financial instruments, amidst an increase in both foreign direct investment and portfolio investment inflows. Indonesia's FFL position fell by 2.3% (qtq) from US$720.8 billion at the end of the first quarter of 2022 to US$704.3 billion at the end of the second quarter of 2022.

This decrease in the FFL position was primarily caused by other changes related to the value of rupiah-denominated domestic financial instruments. This situation coincided with a decline in prices and an appreciation of the US dollar against the Rupiah.

Further decline was offset by FFL transactions that recorded a surplus in the form of inflows from foreign direct investment and portfolio investment in the second quarter of 2022. This was in line with investor optimism regarding the prospects for economic recovery and a sustained domestic investment climate.

Indonesia's FFA position increased, mainly due to an increase in the position of portfolio investment assets and other investments abroad. At the end of the second quarter of 2022, the FFA position rose by 0.2% (qtq) from US$433.0 billion at the end of the previous quarter to US$433.9 billion. This development was supported by the increased position of portfolio investment assets and other investments, in line with the increase in overseas asset placement. The increase in the FFA position was offset by other changes related to the strengthening of the US dollar against most major world currencies and the decline in the price of several overseas assets.

Bank Indonesia views the development of Indonesia's IIP in the second quarter of 2022 as remaining stable and supportive of external resilience. This is reflected in the ratio of Indonesia's IIP net liability to GDP in the second quarter of 2022, which remained at 21.3%, down from the ratio in the previous quarter of 23.6%. Furthermore, the structure of Indonesia's IIP is also dominated by long-term instruments (93.4%), mainly in the form of foreign direct investment.