Cautious Market, Rupiah Falls: Prabowo's Effort to Restore Confidence

Financial markets in Asia are in flux, awaiting signals on US interest rate policies. In Indonesia, this anticipation is further compounded by post-election political turmoil and mounting concerns over fiscal stability. With the impending implementation of ambitious yet costly programs by the newly elected president, coupled with uncertainties surrounding the continuity of key figures like Finance Minister Sri Mulyani Indrawati, the nation's economic direction hangs in the balance. 

For context, economists have sketched out a scenario where US inflation stubbornly remains above the Federal Reserve's comfort zone, potentially forcing the central bank to maintain interest rates at a 23-year high instead of implementing anticipated cuts. This projection gains credence from February's remarkable surge in consumer spending.

In response to this uncertain environment, investors hedge their bets by favoring traditional safe havens like the US dollar and gold. The US dollar index has embarked on a steady ascent, reaching its highest point since November of the previous year, while gold prices soared to unprecedented heights, breaching the US$2,200 mark per ounce. 

Back to home turf, amidst this flight to safety, there has been a notable decline in the ownership of rupiah-denominated tradable government securities by non-residents, dropping from Rp 841.37 trillion on Feb. 15, the day after the Indonesian elections, to Rp 810.71 trillion on Mar. 28. Furthermore, Indonesia's Composite Stock Price Index (IHSG) saw a more than two percent drop in trading over the past week.

The Indonesian rupiah and other emerging countries' currencies have experienced depreciation. Since late May, the rupiah has been traded close to Rp 16,000 per US dollar. On Monday, Apr. 1, the rupiah's exchange rate in the spot market closed at Rp 15,955, marking a 3.7 percent drop year-to-date.

Efforts to calm volatility in the financial market are evident, with a focus on minimizing negative sentiment, particularly regarding fiscal management. Prabowo's team has revealed a conservative budget for the free school lunch program's first year, addressing concerns. Additionally, a buzz is circulating about notable figures from regulatory bodies and previous administrations being considered for the finance minister position.