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    Saturday, June 28, 2014

    BEI Fears Uncontrolled Deficit May Cause Capital Outflow

    Tobapos -- Capital outflow can happen like in 2013 unless the current account deficit is not controlled, noted Ito Warsito, the chief of the Indonesia Stock Exchange (BEI).

    "If the current account deficit cannot be controlled then the foreign investors may sell their shares similar to what happened in May, last year. It happened because the trade deficit in April 2013 suddenly expanded to US$1.6 billion," he stated here on Friday.

    Warsito cautioned that the widening trade deficit can have a negative impact on the national economic growth. As a result, the financial industry will become tighter and will exert pressure on the rupiah currency.

    He added that the depreciation of the rupiah can also be a positive sign for foreign investors as the prices of shares in US dollars will become cheaper.

    Citing an example, Warsito noted that a share worth Rp12 thousand will only sell at US$1.2 if the rupiah exchange rate against the dollar is at Rp10 thousand, while if the rate is Rp12 thousand, the share will only sell at US$1.

    This will prove to be an incentive for foreign investors who entered Indonesia when the rupiah exchange rate was down because the investors will be able to reap double profit from capital gain and rupiah exchange rate, he pointed out.

    Warsito stated that the incentive will no longer be attractive if the country's current account deficit was not brought under control as the situation will set off fears among foreign investors looking forward to enter Indonesia.

    He said uncontrolled deficit will mar the incentive sentiment as the investors will be afraid to invest, thus leading to further downfall in the rupiah exchange rate.

    "The government must pay greater attention to tackling the deficit as its impact will be massive and fearful. If the deficit happens in the share market, I will not be afraid," Warsito remarked. (ant/adm)

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