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  • Emerging Markets Debt Daily

    Indonesia Ties Financial Stability to Reforms

    Natalia Gurushina, Economist, Emerging Markets Fixed Income
    October 02, 2019

    Indonesia’s central bank sends a strong message that there is no financial stability without reforms. Brazil’s senate approves the pension bill in the first reading, but it gets watered down.

    Today is Day 3 of my Asia research trip, and I am in Jakarta. The key takeaway so far is how much emphasis regional governments put on structural change and the pro-growth reform agenda. “Improving the eco-system for investments” is a secular daily prayer for all government officials. Indonesia’s central bank put it very simply today—there is no financial stability without growth, and there is no growth without reforms. We cannot agree more (even though we are fully aware of implementation risks). A highlight of our visit to Bank Indonesia was a gift of fried chicken, which was a very nice surprise. We are staying in Jakarta for one more day.

    The first-round approval of the pension bill in the Brazilian senate raised some concerns. Even though the bill got more votes than required, the projected savings were watered down to BRL702B over the next 10 years. There is one more round in the senate—most likely next week—and the market is now more attuned to a possibility of additional amendments.

    Peruvian assets wobbled following reports about the fully-blown constitutional crisis. At the center of it is a conflict between President and the opposition-controlled parliament about the election of the constitutional court’s members. Under the baseline scenario, the country will hold an early election in January 2020. 


    PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments.; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan's index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG - JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.

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