Indonesia’s Economy Relatively Insulated from Ukraine Crisis

As the Russian military invades Ukraine, Indonesia can expect the little direct impact on its economy and capital markets, but investors are advised to remain wary of many indirect effects of the crisis. Fikri C. Permana, a senior economist at PT Samuel Sekuritas Indonesia, said on Thursday that Indonesia had relatively little trade and investment activities with either Russia or Ukraine, with the two countries contributing less than 1 percent of total investments last year. He also noted that the Indonesia Stock Exchange (IDX) composite index, the main barometer of the Indonesian stock market, was down almost 2 percent on Thursday, a trend reflected in many other indices, but capital inflow to the Indonesian market remained strong with Rp15.42 trillion (US$1.07 billion) between Feb. 1 and Feb. 23, while the rupiah remained stable at between Rp14,200 and Rp14,400 per US dollar due to foreign investors’ net buys. “We see the effect of the war on the Indonesian capital market as being rather temporary, and will more likely make investors cautious,” Fikri said in a statement on Thursday.  

The Russian military has moved its troops, in what Ukraine has called “a full-scale invasion”, deep into the latter country. Western countries have imposed sanctions to weaken the Russian economy, hoping to stop the war. Sucor Sekuritas equity research analyst Paulus Jimmy said on Friday that the war had made the capital markets a bit volatile with investors leaning toward a risk-off, meaning they preferred to reduce their risk exposure in protecting their portfolios. He advised investors not to panic, but to remain wary of the course of the war. A prolonged war could trigger continuous hikes in commodity prices, which could translate into higher inflation and cause negative sentiment in the capital market.

“So far, the impact on our capital market has not been too big. For now, there is indeed a rise in oil prices, but it has been offset by a hike in the coal price,” Paulus told The Jakarta Post on Friday.

Feb 25, 2022, The Jakarta Post