Indonesia's 2018 Investment Risk Perception (CDS) Increased, but Not as High as 2008

Risk perception regarding investment in the Indonesian financial market increased throughout 2018. This is reflected in the 10-year government bond Credit Default Swap (CDS) which rose by more than 7,000 basis points (bps) to 225.93 on September 7, 2018, from 153.94 at the end of last year. Similarly, the yield on 10-year government bonds (SUN) increased by 224 bps to 8.55% from 6.32%, based on Bloomberg data.

The US Federal Reserve's (The Fed) policy of raising its benchmark interest rate, the threat of a trade war, and the crises in Argentina and Turkey fueled the appreciation of the US dollar against major world currencies, including the Indonesian Rupiah. This uncertainty led investors to prefer investing in the US dollar and divest from assets considered risky in emerging markets like Indonesia. This caused the Rupiah to weaken to nearly Rp 15,000 per US dollar.

Although investment perception increased throughout the year, Indonesia's economic fundamentals currently remain stronger than during the 1998 crisis. This can be seen in Indonesia's CDS, which remains far below its level during the 2008 US financial crisis, when it exceeded 1,000. For information, Indonesia's economy is still growing at 5%, inflation is maintained at 3%, and foreign exchange reserves are sufficient to finance more than 6 months of imports and government foreign debt.