A clerk shows $100 bills at a money exchange shop in Jakarta in March. (Antara Photo/Indrianto Eko Suwarso)

Indonesia Reports Narrowest Current Account Deficit in 3 Years


AUGUST 18, 2020

Jakarta. Indonesia has booked its narrowest current account deficit in three years last quarter thanks to record trade surpluses caused by weakening imports amid restrictions to curb Covid-19 pandemic in the April to June period, Bank Indonesia announced on Tuesday. 

The deficit in the current account — the broadest measure of the country's external trade that includes merchandise and services exchanges as well as income payments and remittances — stood at $2.9 billion, or 1.2 percent of Indonesia's gross domestic product, in the last quarter. 

That was narrower than a $3.7 billion deficit, or 1.4 percent of GDP, in the first quarter and was also the smallest deficit since the first quarter of 2017. 

"The smaller deficit of current account bolstered by goods trade surplus due to imports declines spurred by weak domestic demand," Onny Widjanarko, an executive director and the head of the communication department at Bank Indonesia, said in a statement. 

Income payments to foreign investors also fell last quarter in line with a 5.3 percent contraction of the economy in the period, Onny said. 

"On the other hand, incoming remittances from Indonesian migrant workers declined in line with the global economic contraction, thus prevented a further decline in the current account deficit," he said. 

The capital account, which records trade in assets between Indonesians and their foreign counterparts, jumped to a $10.5 billion in the second quarter from a $3 billion deficit a quarter earlier, as the appetite to the portfolio and direct investments in Indonesia remain strong. 

Last week, global debt rating agency Fitch Ratings affirmed Indonesia's sovereign debt rating at BBB, or two-level above investment grade, with a stable outlook. Fitch said Indonesia's growth outlook in the medium-term remains favorable, and the government response to the Covid-19 crisis has been on the right track to support households and companies.

Fitch projected Indonesia's economic activity in Indonesia would contract by 2 percent this year before rebounding with a 6.6 percent growth in 2021.

"The persisted foreign capital inflows were influenced by increasing global liquidity, attractive yields on domestic financial assets, and maintained investor confidence in the domestic economic outlook," Onny said. 

The narrowing current account deficit and large surplus in the capital account allowed Indonesia to reverse the balance of payment into a $9.2 billion surplus in the second quarter from an $8.5 billion deficit in the first quarter. 

"Looking forward, Bank Indonesia will keep a closer look at the dynamics of the global economy that can affect the balance of payments outlook and continue to strengthen the policy coordination with the government and relevant authorities to strengthen the external sector resilience," Onny said.