Tale of two emerging markets: why Indonesia’s prospects look healthier than Turkey’s

These are challenging times for the world’s developing economies. Money has been pouring out of emerging markets and into the US for the past several weeks as international investors reposition their portfolios in anticipation of a faster pace of interest rate increases by the Federal Reserve. A stronger American economy, attested by an unemployment rate that has just fallen to its lowest level in 18 years amid signs that wage growth is picking up, has fuelled a rally in the dollar and driven up Treasury yields, putting emerging market currencies, bonds and equities under heavy strain.

Countries with large external debts, or which suffer from sizeable macroeconomic imbalances, have been hardest hit. In Asia, Indonesia has come under more pressure than other nations in the region, mainly because of its hefty current account deficit, currently the largest in Asia along with India’s, and the nearly 40 per cent share of local currency bonds held by foreign investors.