Throughout the Bank Indonesia press release from the Board of Governors Meeting results, external factors are never separated from the main consideration in determining the policy rate. If looking at the real sector, the process of investment, export-import, until the flow of labor in Indonesia began to build sensitivity  to external factors. From the overall phenomenon, it is interesting to note the existence of a scope to position Indonesia as a small open economy, which is the country that is affected by the turbulence of the big economy. This leads to a fundamental question, “where is Indonesia’s position in the global economy?”
In answering that question, this short article will use the interconnection index of Francis X. Diebold and Kamil Yilmaz , edited periodically through the financialconnectedness.org website. The index is calculated using data between countries, with the number of countries to. In accordance with the focus to be addressed in this article, the index can explain the percentage of a country’s volatility caused by the global turmoil.
Related to the discussion focus on this article, the measure used is the “net” index to explain whether the position of the country affect global, or global influences. In relation to the object described by the index, the data available from the financialconnectedness.org site for Indonesia is only for the dynamics in the stock market and the exchange rate against the US Dollar.
In figures 1 and 2 the incidence of dynamics in the market and in Indonesia is related to the impact of the global fluctuation. This index can adequately describe the dynamics during the 2000s. One example that can be explained is the sped of the second data after Lehman Brothers bankruptcy, which is 15 September 2008.
Picture 1. The development of the “Net” Index for Use Exchange Rates Diebold-Yilmaz Method
Overall, the index on both types of objects indicates that Indonesia is a country that has a high volatility impact from the global fluctuation. The absolute average value of the index for the exchange rate market reached 14.86 percent, and the highest value could reach 47.67 percent. While on the stock market the average value of absolute shows a value that is not different, i 14.55 percent, but with the highest value is greater, by 59.20 percent. This explains that in Indonesia these two markets are very vulnerable to global fluctuation.
Picture 2. Development of “Net” Index for Stock Market Uses Diebold-Yilmaz Method
But in general, there are interesting differences in the level of interconnection between the two markets. Both markets show different dynamics, precisely related trends. In the market of exchange rates, there is a change in the trend of interconnection rates after a period of stabilization after the global financial crisis, precisely from the downward trend to be stagnant. While on the stock market, Indonesia’s interconnection rate does not show a significant trend, so it can be concluded relatively stagnant.
From the developments in both markets, there are two important points in the level of Indonesia’s interconnection of the global fluctuation. The first point that is quite interesting is related to the global financial crisis of 2008. At the time of the crisis, Indonesia is well known to have good resilience during that period, while maintaining the growth rate of real Gross Domestic Product at the level of 6.01 percent for 2008, only decline 0.23 percent from a year earlier.
The next point is a general overview of the development of the interconnection index for Indonesia. During the 2000s, Indonesia has always been in a recipient of turmoil, supporting the notion that Indonesia is a small open economy in the global economy. In addition, based on trend analysis can also be concluded, that the trend does not change until 2016.
If we back to the original question, we can conclude that the fluctuation of the global economy is important to be noticed by policy makers in Indonesia. Trends from the stagnant level of interconnection at the negative (impact recipient) level also support policy makers to keep in mind external factors in the future. Indonesia’s experience is quite stable in times of crisis also cannot be used as a reference, because the market in Indonesia is not dominant connected with the United States. Thus, based on Indonesia’s increasingly connected future development, for example through future Trans-Pacific Partnership agreements, external factors will surely become increasingly meaningful to the Indonesian economy.