To a degree, Indonesia is insulated against a potential meltdown in Europe, with exports accounting for just 29% of GDP, and much of that external trade being with its regional neighbours.
"Indonesia is largely a domestically driven economy that is slightly sheltered from external shocks, with its integration in the region much more important. China and India will be the key players," Prakriti Sofat, an economist at Barclays Capital in Singapore, told the international media on May 10. "I think there will only be a marginal impact, if anything, on Indonesia from eurozone woes."
While this applies to most of the economy, that is not to say that the Greek debacle has had no impact on Indonesia's capital markets. On May 11, the Finance Ministry announced it intended to scale back the size of its planned bond offering, reducing the scope of both Islamic and yen-denominated debt (Samurai debt) it was looking to raise on the markets, with the downward revision a result of concerns over the situation in Greece. Having previously announced it planned to issue $750m of Islamic bonds in July, it is expected this will be lowered to $500m, with a similar issue of Samurai debt being offered in the second half of the year, well off the $1.1bn predicted by market analysts.
Of greater concern is the possibility that investors may bail out of Europe and pile into the Asian market, with the high-performing Indonesian economy a prime draw for hot money. Though few countries would every turn away capital, the worry is that a surge of liquidity flowing into the markets could inflate an investment bubble, something both the government and the Indonesian central bank have been trying to avoid.
Ratings agency Moody's warned on May 10 that Asia was not suffering from too few investors but from too many.
"Strong inward global capital flows are challenging Asia's central bankers, by adding to inflationary pressures and fuelling asset-price bubbles," the agency said in a research note.
Those pressures could become even more evident in Indonesia, which saw its economy expand 5.7% year-on-year in the first quarter, its best result since Q3 2008. Though there is the chance the economy could overheat in the coming months, Bank Indonesia (BI), the country's central bank, still feels it has a firm grip on the wheel, leaving interest rates unchanged at 6.5% following a meeting of its monetary board on May 5.
While mindful of the risk, BI said the present rate was both consistent with its inflation target of 4-6% and conducive for economic recovery. This positive take came even with the situation in Europe taken into account.
"Optimism over the global economic recovery is getting stronger despite the risks associated with the crisis in a number of European countries such as Greece and Portugal," a BI statement said.
That crisis has seen Standard & Poor's (S&P) downgrade Greek debt to junk status in April. At the same time, Indonesia's standing in the capital markets has been heading the other way. At the end of January, Fitch Ratings raised Indonesia's credit rating to BB+, one level below investment grade, a rating Jakarta hopes will be afforded it in the coming months.
One possible obstacle to a further ratings increase is the resignation of Indonesia's long-serving finance minister, Sri Mulyani Indrawati, who announced in early May that she was standing down after five years in the job to take up a position with the World Bank as of June 1.
According to Rahmat Waluyanto, the ministry's director of debt management, the departure of the reform-minded minister could prompt a delay in Indonesia's credit ratings being raised the last crucial step to investment grade. News of Sri Mulyani's resignation had increased Indonesia's risk profile, with notice being taken by credit agencies, Rahmat said
"I met ratings agencies Moody's and S&P," Rahmat told the local press on May 7. "They voiced the concerns of investors about Sri Mulyani's resignation."
These concerns stem mainly from uncertainty over whom President Susilo Bambang Yudhoyono will appoint as finance minister and whether the incoming candidate will pursue the policies of fiscal and market reform so vigorously carried out by Sri Mulyani.
At least some analysts believe these fears have little foundation, and that the reform process will continue, whoever replaces her. Kevin Grice, a senior economist with Capital Economics, said that though Sri Mulyani would be leaving the scene, her legacy would remain.
"Her reformist, technocratic approach is now well entrenched and should survive her departure," he said in a report issued on May 6.
Whoever Sri Mulyani's successor, they will have to work closely with the BI to ensure the delicate balance of the country's capital markets is maintained, keeping the flow of money comfortably warm but not too hot.