Indonesia's Current Account Deficit Narrows to 1.8 Percent of GDP: Bank Indonesia

BY :TABITA DIELA

NOVEMBER 12, 2016

Jakarta. Rising prices of main export commodities have helped Indonesia's current account deficit to narrow in the third quarter, reducing the country's dependency on overseas financing and improving its resilience against global volatility risks.

Indonesia's current account deficit — the broadest record of a country’s trade in international goods and services, as well as in remittances and its investment income — declined to $4.5 billion or equal to 1.8 percent of its gross domestic product (GDP) in July-September.

The deficit was at $5 billion in the second quarter or 2.2 percent of the GDP. Bank Indonesia had revised it from 2 percent.

The latest announcement come amid a sharp plunge in the country's stocks, bonds and currency market, as foreign investors sold their assets in Indonesia and other emerging markets in anticipation of a more aggressive interest rate bump in the United States.

Some investors are worried by accelerated inflation which may stem from US President-elect Donald Trump's expansive fiscal plan and protectionist trade policy.

Hendy Sulistiowati, Bank Indonesia's executive director of statistics, told reporters Indonesia's current account deficit will not exceed 2 percent in the next quarter. The overall deficit will stay below 2.5 percent of the GDP this year, according to Hendy, a level that the central bank think is still sustainable to support growth.

"Better commodity prices will improve our export, so I'm not seeing a big threat from the current account deficit side," she said.

The price of coal, Indonesia's second largest export after palm oil, has risen 29 percent so far this year, thanks to rising demand from China.

The gap in the current account is made up with investment, both in the real sector or in purchases of securities that are recorded in the country's capital account. In the third quarter, these transactions managed a surplus of $9.4 billion, up from $7.6 billion in the second quarter, thanks to an inflow into stocks and bonds precipitated by the government's tax amnesty program, as well as more investment from multinational companies in their local operations.

The narrowing current account deficit and rise in capital account surplus have also helped Indonesia's balance of payment (BoP), with a $5.7 billion surplus recorded in July-September, up from a $2.2 billion in April-June.

The surpluses were accumulated in the country's foreign reserves, which rose to $115.7 billion from $109.8 billion in the second quarter.

Mirza Adityaswara, Bank Indonesia's senior deputy governor, told reporters Indonesia's balance of payment and trade balance "are in good shape," with $10 billion in surplus expected by the end of this year.

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