Market Pulse: Dressing Up for Hot Money

When the political climate heats up, there will be movements of hot money that impact the fate of all Indonesians. These do not come from the illegal fruits of crime, however. Hot money is a term used in financial markets for short-term investment funds that can quickly move around in search of the most profitable investment.

Indonesia is highly dependent on these inflows of hot money. One of the reasons is the running deficit in its current account since the third quarter of 2011. This is because the country has spent more foreign exchange to import goods and services than its earning from exports. Just last year (January-September), the current account deficit reached US$13.9 billion. Naturally, this gap had to be closed. Otherwise, the Indonesian economy would eventually run out of foreign currency and the rupiah would fall.