Don’t waste Indonesia’s macroeconomic opportunity
Many advanced economies that once set the benchmark for macroeconomic discipline now struggle with problems more common to emerging markets. For emerging economies with sound policies, this creates a rare opportunity to narrow the credibility gap.
Indonesia's new finance minister, Suahasil Nazara, took office after replacing Purbaya Yudhi Sadewa on September 14. Despite his appointment, Nazara is not viewed as an outsider, as he has served as deputy finance minister since 2019. This change, however, brings an economist who understands the significance of the situation closer to the decision-making process.
The global economy has seen a shift in recent years, with advanced economies facing challenges typically associated with emerging markets. These include large fiscal deficits, increasing public debt, persistent inflation, and difficult political choices. Aging populations, geopolitical pressures, and rising defense spending are further straining fiscal space in Europe, while Japan grapples with an exceptionally large public debt as it transitions away from ultra-low rates.
For emerging economies with sound policies, this presents a unique opportunity to close the credibility gap. In the United States, this is exemplified by the country's 10-year yield nearing 5 percent, compared to Indonesia's 6 percent, a difference of just 100 basis points. The Indonesian rupiah has weakened to around 17,600 per dollar, but the gap between advanced economies and Indonesia's pricing has become unusually narrow.
Traditionally, emerging economies like Indonesia have paid a premium over advanced economies due to factors such as inflation, currency risk, and institutional credibility. However, this advantage is no longer as pronounced. The widening gap in long-term interest rates between the US and Indonesia presents an opportunity for Indonesia to improve its credibility relative to global investors.
If US yields remain around 4.5-5 percent while Indonesia's bond yields approach 6 percent, the spread could narrow to 100-150 basis points. This significant structural re-rating would reduce Indonesia's economy-wide cost of capital and provide better support for the rupiah. The story continues with readers sharing their experiences, suggestions, and feedback on The Jakarta Post, emphasizing the importance of engaging with the audience to foster further discussion.
Written by urgent.news from The Jakarta Post's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
