TEMPO.CO, Jakarta - The increasing geopolitical tensions between the United States (US) and Iran in the Middle East is having a short-term effect on the Indonesian economy, Bank Indonesia (BI) has said. In an interview with the media in Jakarta Friday, BI Governor Perry Warjiyo said that geopolitical risks, which have increased military intervention from the two countries, have not caused significant pressure on the country's macroeconomic conditions.

Until Friday, January 10, the rupiah exchange rate was still running as per the market mechanism. On the spot Friday morning, the rupiah strengthened 0.3 percent to Rp13,813 against the US dollar from Rp13,854.

"We do not see a significant impact on macroeconomic conditions, external stability and the Rupiah exchange rate," Perry said.

Besides, Indonesia's investment risk premium or credit default swap (CDS) also remained low with a continuing downward trend, Perry noted.

"In the short term, of course, some of the political risks associated with the Iran-US conflict or with Brexit certainly have a short-term effect. But we fundamentally think that it will have no significant effect," he said.

Nevertheless, BI will continue to monitor global developments. What market participants are waiting for is the first phase of trade negotiations between the United States and China which will be discussed in the near future.

The agreement will provide a positive market perception for the global economy, according to Perry.

"That echoes a positive perception that the world economy this year grew around 3-3.1 percent, or an increase of 2.9 percent," he said.

This positive catalyst also provides an opportunity for Indonesia to increase exports, support economic growth and encourage the flow of foreign capital into the country.

"The trade agreement between the US and China will provide opportunities for us to increase exports and support economic growth and also provide a positive risk perception for the flow of foreign capital into the country," Perry said.

ANTARA