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Indonesia: Selected Issues

Author(s):
International Monetary Fund. Asia and Pacific Dept
Published Date:
February 2017
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Capital Inflows to Indonesia Since the Global Financial Crisis1

The landscape of capital inflows to Indonesia has changed in both the volume and composition since the global financial crisis (GFC). As nonresidents are purchasing Indonesian assets, Indonesia’s external liabilities and debt positions have changed as well. While capital inflows have helped to finance Indonesia’s current account and fiscal deficits since late 2011 when the commodity super-cycle was over, they have also brought challenges due to their volatile nature and tendency to come in waves, in particular, portfolio inflows.

A. Introduction

1. This paper analyzes developments in capital inflows to Indonesia since the GFC. Throughout the paper, capital inflows are defined as net acquisition of domestic assets by nonresidents. The paper discusses the recent trend of capital inflows to Indonesia, new features of Indonesia’s external positions, and main drivers for capital inflows.

B. Developments of Capital Inflows

2. Capital inflows to Indonesia have increased since the GFC. Their average volume increased from 3¼ percent of GDP in 2005–09 to 4½ percent of GDP in 2010:Q1–2016:Q3. From the global perspective, driven by the liquidity released from the systemic economies’ unconventional monetary policies, a global search for yields has led to large capital inflows to emerging and developing economies (EMDEs), especially portfolio inflows (Sahay and others, 2014). Indonesia was not an exception. While many EMDEs experienced a steady decline in capital inflows during 2013−16, capital inflows to Indonesia increased and reached a peak in late 2014, and then started to decline but remained at relatively high levels in 2015:Q1–2016:Q3 (Figures 1 and 2).

Figure 1.EMDEs: Capital Inflows

(Rolling four-quarter sum, in percent of group GDP)

Sources: IMF, Financial Flows Analytics and Balance of Payments Statistics; and IMF staff estimates.

1/ “Other inflows” is a residual category, comprising mainly loans (including bank lending and trade credit), deposits, and financial derivatives.

Figure 2.Indonesia: Capital Inflows

(Rolling four-quarter sum, in percent of GDP)

Sources: Haver Analytics; and IMF staff estimates.

3. The increase in capital inflows has helped to finance Indonesia’s current account and fiscal deficits (Figure 3). After the commodity super-cycle fizzled out in 2011, Indonesia’s current account has remained in deficit since 2012, in parallel with a widening fiscal deficit. Against this backdrop, increasing capital inflows enabled Indonesia to finance a current account deficit and issue additional government securities to meet the budget’s needs.

Figure 3.Indonesia: Capital Inflows and Current Account Balance

(In percent of GDP)

Sources; Haver Analytics; and IMF staff estimates.

4. FDI and portfolio inflows dominated capital inflows to Indonesia. They accounted for 52 percent and 40 percent of total cumulative inflows in 2010:Q1–2016:Q3, respectively, and these ratios have broadly remained stable since 2005. Other investment inflows became positive (in four quarter rolling terms) since early 2008 largely due to a pickup of cross-border bank lending to the private sector. However, the recent external deleveraging of the private sector has led to a reversal of other investment inflows.

5. The volume of portfolio inflows was influenced by global market sentiment. Due to Indonesia’s close integration with global capital markets, portfolio inflows have followed a clear risk-on and risk-off pattern (Figure 4). Since portfolio inflows resumed after the GFC, their main reversals corresponded to changes in global sentiment: the euro area sovereign debt crisis in late 2011 and the EM volatility transmitted from the reform of China’s exchange rate policy in the second half of 2015 (renminbi reform). Portfolio inflows declined sharply during the 2013 taper tantrum as well.

Figure 4.Indonesia: Portfolio Inflows

(In billions of U.S. dollar)

Source: Haver Analytics.

6. Government bonds have been the most popular financial instruments for foreign investors (Figure 5). Inflows to government bonds, accounting for 83 percent of total cumulative portfolio inflows, averaged at 1.5 percent of GDP in 2010:Q1–2016:Q3. Global fixed-income investors are attracted by Indonesia’s high government bond yields, relatively high economic growth, and the statutory fiscal deficit limit of 3 percent of GDP, which caps gross fiscal financing requirements (Miyajima and Toh, 2017). Corporate bonds are the second most popular instrument; however, foreign purchase of corporate bonds has recently declined, following a similar declining trend in cross-border bank lending. Inflows to central bank bills (SBIs) were influenced by Bank Indonesia’s (BI) capital flow management measures. After BI extended the minimum holding period of SBIs to 6 months in May 2011 from one month (imposed in July 2010), foreign investors sold off SBIs.2 Inflows to equity, relatively small in volume, had been volatile.

Figure 5.Indonesia: Portfolio Inflows

(Rolling four-quarter sum, in percent of GDP)

Sources: Haver Analytics: and IMF staff estimates.

7. Local currency (LCY) government bonds have attracted more inflows than those denominated in hard currency. It is estimated that 60 percent of the inflows to government bonds went to rupiah-denominated government bonds in 2010:Q1–2016:Q3. Despite some episodes of outflows—such as during the euro area sovereign debt crisis, the taper tantrum, and the 2015 renminbi reform—total cumulative inflows reached US$52 billion during this period, a major source for financing the budget deficit (Figure 6).

Figure 6.Inflows to Local Government Currency Bond

(In billions of U.S. dollar)

Sources: CEIC Data Co, Ltd.; Bloomberg LP,; and IMF staff estimates.

8. Inflows to LCY government bonds were strong in the first three quarters of 2016, before experiencing volatility. They reached about US$9.5 billion in January–September 2016, reflecting favorable global financial environment, attractive bond yields, and some speculative inflows related to the tax amnesty program. Inflation-adjusted yield of Indonesia LCY government bonds was high compared with other countries (Figure 7), and total annual returns of bonds reached 40 percent in U.S. dollar term at end-September 2016—a combination of high yields, positive valuation (inversely related to the bond yields), and the appreciation of the rupiah against the U.S. dollar (Figure 8). However, the returns from exchange rate movements have been volatile and often correlated with the return from valuation, attesting to the role of foreign investors in influencing the bond yields. Then inflows reversed in October 2016 as foreign investors likely took profits, with the reversal accelerating following the U.S. election. It is estimated that the amount of capital reversal from LCY government bonds reached US$2.2 billion in October 1–November 30, 2016 with the yield of 10-year bonds up by 100 basis points. Since then, capital inflows have gradually resumed, accompanied by the decline of bond yields.

Figure 7.Government Bond Real Yield and Credit Rating 1/

Sources; Bloomberg LP; IMF. information Notice System, and IMF staff estimates.

1/ Real yield is defined as nominal bond yield minus inflation rate. Credit Rating represents average of ratings trom S&P, Fitch, and Moodys for each country. Data as of November 2016 or latest available.

Figure 8.Indonesia: J.P. Morgan Government Bond Index-EM Global Diversified, 12-month Return

(In percent)

Sources: Bloomberg LP.; and IMF staff estimates.

9. The correlations among key types of capital inflows seem to be low based on quarterly balance of payments data (Table 1). Low positive correlations point to small likelihood of foreign investors’ herding behavior during shocks; while low negative correlations mean less chance for one type of inflows to compensate for a decline in another type of inflows. The negative one correlation between FDI debt inflows and debt outflows reflects the recurrent short-term intra-company trade credit, which would be recorded as debt inflows and debt outflows in the same quarter. The correlation between FDI and private sector bond inflows is relatively high, as they are likely to be driven by the same underlying factors, such as the outlook of economic activity or commodity prices. The correlation between public bond inflows and public other investment inflows was almost zero, pointing to limited substitution between these two types of government borrowing.

Table 1.Indonesia: Correlation Coefficients for Items in the Financial Account(2010:Q1-2016:Q3)
FDIFDI equityFDI debt inflowsFDI debt outflowsPortfolioEquityBondBond (private)Bond (public)OIOI (private)OI (public)
FDI
FDI equity
FDI debt inflows0.6
FDI debt outflows−0.7−1.0
Portfolio0.20.20.1−0.1
Equity0.0−0.2−0.10.2
Bond0.30.30.2−0.20.2
Private sector0.30.10.3−0.20.1
Public sector0.10.20.1−0.10.2−0.1
Other investment0.00.20.1−0.2−0.2−0.2−0.2−0.1−0.2
Private sector0.10.30.3−0.3−0.2−0.2−0.20.1−0.2
Public sector−0.10.0−0.10.1−0.1−0.1−0.1−0.30.00.0

10. However, high-frequency data point to a high correlation between equity and LCY government bond inflows, especially during the episodes of shocks. During the taper tantrum and 2015 renminbi reform, both equity and bond inflows to Indonesia declined or reversed, as foreign investors reduced their exposures to EMs (Figures 9 and 10).

Figure 9.Indonesia: Equity and Local Currency Government Bond Inflows, 2013 Taper Tantrum

(In billionsof U.S. dollar, cumulative since 1/1/2013)

Sources: Bloomberg Data LP.; and IMF staff estimates.

Figure 10.Indonesia: Equity and Local Currency Government Bond Inflows, 2015 Renminbi Reform

(In billionsof U.S, dollar, cumulative since 1/1/2015)

Sources: Bloomberg Data LP.; and IMF staff estimates.

C. Developments of Foreign Liabilities and External Debt

11. Capital inflows to Indonesia since the GFC led to an increase in external liabilities, albeit from a low level (Figure 11). Indonesia’s foreign liabilities rose from 55 percent of GDP in 2009 to 67 percent of GDP at end-2015. Consistent with the dynamics of capital inflows, increases in FDI and portfolio liabilities were the main drivers for the overall increase in foreign liabilities, and their total share in foreign liabilities increased by 9 percentage points over 2010–15.

Figure 11.Indonesia: Foreign Liabilities by Type

(In percent of GDP)

Sources: Haver Analytics: IMF; and IMF staff estimates.

12. The investor base for Indonesia has shifted towards investors from Europe and the United States (Figures 1215). Within a larger pie of portfolio claims, investors from the United States and European financial centers (such as Luxembourg, Netherlands, Ireland, and United Kingdom) have seen their shares increased. Such increase was observed in both portfolio equity and debt claims, as global investors were diversifying their portfolio investment into EMs. Accordingly, the share of Singaporean portfolio investors has declined. Nevertheless, Singapore investors still dominated short-term portfolio debt claims with a share of 65 percent.

Figure 12.Indonesia: Portfolio Claims

(In percent of total)

Sources: IMF, Coordinated Portfolio Investment Survey; and IMF staff estimates.

Figure 13.Indonesia; Portfolio Equity Claims

(In percent of total)

Sources: IMF, Coordinated Portfolio Investment Survey; and IMF staff estimates.

Figure 14.Indonesia: Portfolio Debt Claims

(In percent of total)

Sources: IMF, Coordinated Portfolio Investment Survey; and IMF staff estimates.

Figure 15.Indonesia: Short-Term Portfolio Debt Claims

(In percent of total)

Sources: IMF, Coordinated Portfolio Investment Survey; and IMF staff estimates.

13. Despite some recent increase, Indonesia’s external debt remains low. Compared to the definition of external liabilities, external debt excludes equity FDI and equity portfolio investment. External debt to GDP ratio increased from 29¾ percent at end-2009 to 35¾ percent at end-September 2016. The share of public debt decreased from 57½ percent to 50 percent over the same period, as about 60 percent of the increase in external debt was due to private sector borrowing. Within the private sector, the external debt of nonfinancial corporate sector stood at 6 percent of GDP.

14. Parent and affiliated company debt constitute a large share of private debt (Figure 16). At end-September 2016, one third of private sector external debt was from either parent or affiliated companies (US$50 billion, 5.5 percent of GDP) with debt from parent companies accounting for 78 percent of such debt. The share of intra-company loans in external debt was highest among nonfinancial corporate (two-thirds). This large share of intra-company loans reduces the rollover risk.

Figure 16.Indonesia: Private Sector External Debt

(In billions of U.S. dollar, end-September 2016)

Sources: Bank Indonesia; and IMF staff estimates.

15. An increasing share of external debt is denominated in rupiah. About 18 percent of Indonesia’s external debt was denominated in rupiah at end-September 2016, up from 10 percent at end-2009. This increase in share, in line with the developments in portfolio inflows, reflected an increasing share of foreign holding of LCY government bonds: a five-fold increase in the nominal value of foreign holdings and a doubling of the foreign share from end-2009 to end-2015 (Figure 17). As a result, the share of rupiah-denominated public debt doubled from 16¼ percent at end-2009 to 32¾ percent at end-September 2016. Foreign ownership as a share of foreign reserves is relatively high compared with peers (Figure 18).

Figure 17.Foreign Holdings of Local Currency Government Bonds

(End-2015, in percent of total)

Sources: Bloomberg LP; Haver Analytics; IMF; and IMF staff estimates.

Figure 18.Foreign Holdings of Local Currency Government Bonds

(End-2015)

Sources: Bloomberg LP; country authorities; Haver Analytics; IMF; and IMF staff estimates.

16. About half of the holders of LCY government bonds are central banks, foreign governments, and mutual funds (Figure 19). Central banks and foreign governments found the EM LCY government bonds attractive after the taper tantrum, as they provide a diversification of investment while reducing the cost of carry of FX reserve holdings (Standard Chartered, 2013). A relatively high share of foreign investors are benchmark-driven EM funds (Figure 20).

Figure 19.Foreign Ownership by Industry

(In trillions of rupiah)

Source: Ministry of Finance.

Figure 20.Types of Foreign Investors in Local Currency Government Bonds 1/

(In billions of U.S. dollar, October 2015)

Source: J.P. Morgan.

1/ Assets under management (AUM) benchmarked to EM indices a re characterized as “dedicated” EM holdings, those benchmarked to widely-fol lowed global bond indices are characterized as “crossover” EM holdings, and the difference between the total foreign holdings and indexed holdings (both dedicated and crossover) is characterized as “residual.”

17. Besides purchasing and holding LCY government bonds, foreigners also use derivatives to gain similar exposure. Total return swaps (TRS) and credit linked notes (CLN) backed by the LCY government bonds are the two popular instruments, which are normally contracted between global investment banks and foreign investors, who get cash flows from the underlying bonds without holding the cash bonds. When local subsidiaries of global investment banks sell TRSs and CLNs to foreign investors, the total foreign exposure to LCY bonds could be larger than the official reporting of foreign holdings as local subsidiaries are considered residents. Despite declining from its 2010 peak, the volume of annual CLN issuance averaged at US$1.2 billion in 2011–15, roughly 15 percent of the increase in foreign holding of cash bonds (Figure 21).3

Figure 21.Indonesia: Change of Foreign Holdings of Local Currency versus Credit-Linked Note Issuance

(In billionsof U.S. dollar)

Sources: Bloomberg LP.; Haver Analytics; J.P. Morgan; and IMF staff estimates.

D. Drivers for Capital Inflows to Indonesia

18. There is a rich literature on the drivers for capital flows. The typical analysis adopts the “push versus pull” framework (for example, Fratzscher, 2011 and Cerutti and others, 2015). Push factors refer to the external supply factors, such as the supply of global liquidity and global risk aversion. Pull factors refer to domestic demand side factors that attract capital inflows, such as macroeconomic fundamentals, institutional framework, and policies. The IMF has devoted a World Economic Outlook chapter (IMF, 2016a) to exploring the drivers of the recent slowdown in net capital flows to emerging market economies, which finds that much of the decline in inflows can be explained by the narrowing growth prospects between emerging market and advanced economies. IMF (2016b) points out that both push and full factors remain important for capital flows, suggesting that source and recipient country policies play a role. Other recent work on capital flows includes Ghosh and others (2012), Nier and others (2014), Chung and others (2014), and Sahay and others (2014).

Panel Analysis

19. This analysis on the drivers for capital inflows to Indonesia is based on a panel analysis of 34 countries4 with country fixed effects (Hannan, 2017 and Table 2). The time period is 2009–15 and quarterly data are used to capture the drivers for capital flows after the GFC. Coefficients from the panel analysis are applied to Indonesia-specific factors and global factors to derive the portion of capital inflows that can be explained by each factor.

Table 2.Capital Inflows 1/(Share of GDP)
Variables2009:Q3–2015:Q4
TotalPrivateFDIPortfolioPortfolio DebtPortfolio EquityOther
Growth differential0.21 *0.32 **0.070.06 *0.07 *0.010.07
(0.12)(0.12)(0.05)(0.03)(0.04)(0.01)(0.09)
Interest rate differential0.31 *−0.140.100.040.050.020.22 *
(0.16)(0.16)(0.09)(0.05)(0.06)(0.01)(0.12)
Trade openness−0.010.050.06 *−0.03−0.03 **−0.01 *−0.02
(0.05)(0.05)(0.03)(0.02)(0.02)(0.00)(0.04)
Reserves0.06 **0.07 **0.03 *0.04 **0.04 **0.00 **−0.00
(0.02)(0.03)(0.01)(0.01)(0.02)(0.00)(0.03)
ER regime0.26−0.24−0.03−0.29−0.27−0.090.61
(0.45)(0.37)(0.11)(0.32)(0.30)(0.05)(0.42)
Institutional quality−8.85 ***−6.90 *−2.41−1.79−1.58−0.30−4.69 *
(2.68)(3.37)(1.80)(2.08)(2.32)(0.32)(2.66)
Income per capita0.00 **0.00 ***0.00 *−0.000.00−0.000.00 **
(0.00)(0.00)(0.00)(0.00)(0.00)(0.00)(0.00)
Capital account openness−2.17−1.95−1.350.381.54−0.14−1.34
(2.38)(2.74)(1.00)(2.27)(1.59)(0.22)(1.46)
Financial development−19.12−27.60−10.311.306.91−2.55−6.89
(24.24)(25.69)(21.68)(9.40)(8.79)(1.75)(9.56)
Global risk aversion (log)−0.56−3.021.96 **−2.41 **−1.94 **−0.350.08
(2.72)(2.23)(0.81)(1.17)(0.80)(0.26)(1.44)
Commodity prices (growth)−0.04−0.00−0.02 **0.010.01−0.00−0.03
(0.04)(0.02)(0.01)(0.01)(0.01)(0.00)(0.02)
Global liquidity (growth)0.100.070.08 *0.080.06−0.00−0.06
(0.13)(0.11)(0.04)(0.07)(0.06)(0.01)(0.07)
U.S. corporate spread0.040.95−0.940.850.260.260.08
(1.18)(1.02)(0.65)(0.69)(0.57)(0.16)(1.05)
U.S. yield gap2.070.85−0.32−0.15−0.520.242.22
(2.43)(1.67)(0.50)(0.96)(0.71)(0.23)(1.46)
Constant−4.525.10−4.785.321.801.43 *−6.87
(14.72)(12.75)(9.28)(4.94)(4.83)(0.78)(7.12)
Observations809809809809758739787
Number of groups34343434333334
Country fixed effectsYESYESYESYESYESYESYES
Source: Hannan (2017).

20. The analysis shows that cyclical factors are significant for capital inflows to Indonesia (Figure 22). Growth and interest differences between Indonesia and the United States seem to account for an important portion of capital inflows.

Figure 22.Indonesia; Drivers for Capital Inflows

(In percent of GDP)

Sources: CEIC Data Co; Hovel Analytics; national sources; and IMF Staff estimates.

21. Global risk aversion is also important. More global risk aversion leads to low inflows, in particular for some components, such as portfolio debt inflows. However, the estimation does not seem to be able to capture the large fluctuations in capital inflows, for instance the reversal related to the taper tantrum, which is likely partly due to large temporary shifts in market expectations regarding the course of monetary policy in the United States, which are difficult to control for a regression using quarterly data (IMF, 2016a).

GARCH Model

22. The availability of daily data on capital inflows allows us to analyze the impact of high-frequency market sentiment on capital inflows to Indonesia. We apply a GARCH model to analyze the main drivers for capital inflows to LCY government bonds, one of the key type of capital inflows to Indonesia. The GARCH framework, a standard tool for modeling volatility in financial economics, allows one to estimate the impact of regressors on the mean and volatility of the dependent variable. The sample data consists of daily observations covering the period of January 1, 2010 to October 31, 2016.

23. The empirical model of the capital inflows to Indonesia is

with

The first equation is the mean equation, in which ct represents the capital inflows to LCY government bonds; ϕi is the autoregressive term incorporating the persistence of the capital inflows; βmXtm reflects the impact of exogenous factors on the capital inflows; εt is the error term. In the second equation—conditional variance equation—σt is the standard deviation, γj is the GARCH term, and αi is the ARCH effects.

24. Variables most relevant for foreign investors’ returns are chosen as the explanatory variables. The first is the expected movement of the rupiah against the U.S. dollar. The change of the 3-month NDF rate is used to represent this expectation.5 The hypothesis is that a more appreciated forward exchange rate would persuade foreign investors to purchase more bonds. The second one is the difference between the five-year government bond yield and interbank market rate, i.e., 3-month JIBOR rate.6 While this is a driver mostly for local investors (mainly banks), indirectly it could also influence foreigner investors, since a larger difference would support the positive price dynamics from local investors. The third one is the VIX indicator, which could capture the impact of global financial conditions and hence the perceived risks of exposure to Indonesian risk.7 Higher market volatility should dent foreign interest in LYC bonds. To reduce the endogeneity of capital inflows, lags of the explanatory variables are used with the lags in both the mean and variance equations chosen based on their significance. A dummy for the bond auction dates has been introduced to the model to control for the inflows related to auctions, however it does not turn out to be statistically significant.

25. The estimation results have confirmed the main hypothesis (Table 3). An expectation of the appreciation of the rupiah is associated with more foreign purchase of bonds; a wider spread of the bond yield over the interbank market rate would encourage more foreign participation; and an increase in global risk aversion is associated with a decline in foreigner investors’ exposure to Indonesian risk. Foreign capital inflows have strong persistence; as inflows usually generate positive, though diminishing, momentum in the next two days.

Table 3.Estimated GARCH Parameters
CoefficientStandard Errorz-Statisticp value
Mean equation
Variable
C105.625.444.150.00
Inflows(-1)0.20.038.080.00
Inflows(-2)0.10.024.290.00
NDF3M(-2)-NDF3M(-5)−0.30.02−15.790.00
YIELD5Y(-2)-JIBOR3M(-2)3.21.901.690.09
LOG(VIX(-2))−29.58.69−3.390.00
Variance equation
C_var314.079.793.940.00
RESID(-1)^20.00.018.770.00
GARCH(-1)0.40.0137.500.00
GARCH(-2)−0.40.01−35.400.00
GARCH(-3)0.90.0171.920.00
R-squared0.188
Adjusted R-squared0.185

E. Conclusion

26. Capital inflows have benefited Indonesia. They allowed Indonesia to finance current account and budget deficits. At one-half of total capital inflows in Indonesia, FDI flows have acted as a long-term stable source of capital as well as a source of new technology and management practices. Portfolio inflows, in particular inflows to LCY government bonds, have enabled the government to borrow externally in domestic currency at a reasonable rate. Other investment flows complemented the domestic banking system in supplying the private sector with credit for trade or longer-term investment.

27. In the meantime, capital inflows have also transmitted global risks to Indonesia. Capital inflows tend to come in waves and could transmit global shocks to the domestic markets. Since the GFC, Indonesia has witnessed several episodes of reversal or sharp declines of capital inflows. During these episodes, exchange, equity, and bond markets came under pressure.

28. Indonesia’s resilience to external shocks has improved. The improved policy framework, such as the subsidy reform and a more flexible exchange rate policy, allowed the authorities to manage the risks from marked changes in capital inflows (Warjiyo, 2014). The current account deficit has adjusted to the commodity down-cycle with Indonesia’s external position broadly consistent with medium-term fundamentals and desirable policy settings (IMF, 2016c). The current low inflation environment provided room for adjusting macroeconomic policies if needed. Reserves are adequate to prevent disorderly market conditions.

29. Given the volatile nature of capital inflows, more could be done to further enhance resilience. Structural reforms to attract more FDI inflows would be welcome, as they are less volatile compared with other types of capital inflows. The recently partially liberalized FDI regime is a welcome step in the right direction. More domestic savings, including public sector saving, would help to reduce the reliance on foreign capital. This would require strengthening revenue collection in the post commodity-boom area. In addition, a deep domestic capital market would help to accommodate the surges and sudden stops in capital inflows, as the narrow investor base and low market liquidity make the government bond market susceptible to heightened market volatility (Miyajima and Toh, 2017).

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Prepared by Yinqiu Lu.

The minimum holding period was reduced to one month in September 2013 and later to one week in September 2015.

Information about the volume of TRSs is difficult to gather. There is no information about the volume of CLNs that have been issued by local subsidiaries of global investment banks.

Albania, Brazil, Bulgaria, Chile, China, Colombia, Costa Rica, Croatia, Ecuador, Egypt, El Salvador, FYR Macedonia, Guatemala, Hungary, India, Indonesia, Jordan, Kazakhstan, Latvia, Lithuania, Malaysia, Mexico, Paraguay, Peru, Philippines, Poland, Russia, Saudi Arabia, South Africa, Sri Lanka, Thailand, Turkey, Ukraine, and Uruguay.

The onshore forward exchange rates have been tried as well, but they have a weaker forecast power despite the expected sign of correlation coefficient. As the NDF captures covered interest rate parity, neither the yield difference between Indonesia and United States nor the Fed funds rate/Fed funds futures turns out to be statistically significant.

The time deposit rates do not turn out to be statistically significant.

The five-year CDS of Indonesia has been tried as well, but as the CDS and VIX have high correlation, the one with more predictive power is chosen, which is the VIX.

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