The Fed and Indonesia

The Fed and Indonesia

Any action taken by the U.S. central bank, known as the Fed, is bound to be watched by financial authorities and market players around the world. On early Wednesday in Indonesia, people were expecting the Fed to announce an increase in interest rates.

Such a raise has been expected for some time by the rest of the world. If this happens, it will be the fifth time in less than a year that the Fed has raised its rates.

What will be the effect on Indonesia? This time it seems there is not much to worry about. The increase will be small -- a mere 0.25 percent -- and there are many other factors that could influence our present economic recovery program. Besides, such an increase has long been anticipated around the world, including in Indonesia.

In the past few weeks the Indonesian financial market has displayed a lackluster performance. Stock market indexes have slipped and the rupiah remained weak against the American dollar. All things considered, it would be difficult for Bank Indonesia to raise interest rates as it would tax the state budget by increasing the burden of interest payments on government bonds issued in connection with the bank recapitalization program.

Given all this, both the government and Bank Indonesia can be expected to do all they can to stave off such a rate increase.

-- Bisnis Indonesia, Jakarta