Indonesia's Trade and Inflation Data Cause Positive Start of the Year

In November 2013, Indonesia's exports fell 2.4 percent (year-on-year) to USD $15.9 billion, while imports fell 11 percent (yoy) to USD $15.2 billion. As such, the November trade surplus was particularly caused by a sharp decline in imports.

Indonesia's Trade Balance 2013 (in billion US Dollar):

2013	Export			Import
Month	Oil & Gas	Non Oil & Gas	Total	Oil & Gas	Non Oil & Gas	Total
January	2,66	12,72	15,38	3,97	11,48	15,45
February	2,57	12,45	15,02	3,64	11,67	15,31
March	2,93	12,09	15,02	3,90	10,99	14,89
April	2,45	12,31	14,76	3,63	12,83	16,46
May	2,92	13,21	16,13	3,43	13,23	16,66
June	2,80	11,96	14,76	3,53	12,11	15,64
July	2,28	12,81	15,09	4,14	13,28	17,42
August	2,72	10,36	13,08	3,67	9,34	13,01
September	2,41	12,29	14,70	3,72	11,79	15,51
October	2,72	12,99	15,70	3,47	12,20	15,67
November	2,75	13,18	15,93	3,94	11,21	15,15
Jan-Nov	29,21	136,36	165,57	41,0	130,13	171,17

^{Source: Statistics Indonesia}

Although on a year-on-year (yoy) basis the country's exports declined by 2.4 percent, there was a 1.5 percent growth on a month-to-month basis in November 2013 due to increased palm oil exports. Indonesia's imports, on the other hand, fell as the sharply depreciated rupiah exchange rate resulted in expensive imports. Imports such as raw materials and machinery showed a marked decline. In 2013, the rupiah depreciated 26.8 percent against the US dollar amid capital outflow due to the looming end of the Federal Reserve's quantitative easing program in combination with Indonesia's weak current account deficit (in particular its weakening exports) and high inflation. Bloomberg reported that global funds pulled USD $1.8 billion from Indonesian equities in 2013.

In the second quarter of last year, Indonesia's current account deficit stood at USD $9.8 billion, equivalent to 4.4 percent of the country's gross domestic product (GDP). This record deficit was alarming as a percentage ratio of above three percent is considered unsustainable. Moreover, the deficit shows a structural problem as Indonesia has generally always posted a trade surplus in its history. In the third quarter of 2013, the current account deficit eased to USD 8.4 billion (3.8 percent of GDP) as the weak rupiah made imports expensive (and exports cheap), while the Indonesian government and central bank (Bank Indonesia) have also been busy to release fiscal policy packages aimed at improving the trade balance as well as the general macroeconomic state of the country.

Recently, Indonesia's Finance Minister Chatib Basri said that he expects the current account deficit to total around USD $30 billion to USD $31 billion (about 3.5 percent of GDP) in full-year 2013. Regarding 2014, Basri sees the deficit easing to USD $23 billion (2.6 percent of GDP).

In combination with stable inflation in December 2013, the Indonesian rupiah exchange rate posted its first weekly gain since October 2013 in the trading week that finished on 3 January 2014. Bank Indonesia's Jakarta Interbank Spot Dollar Rate (Jisdor) appreciated from IDR 12,270 on Monday 30 December 2013 to IDR 12,226 per US dollar on Friday 3 January 2014. Inflation in December was relatively low at 0.55 percent despite higher food and house prices leading to some inflationary pressures amid the seasonal festivities of Christmas and New Year. This indicates that inflation is largely under control in Indonesia although still high at 8.38 percent in full-year 2013. Inflation soared after the government increased prices of subsidized fuels (by an average of 33 percent) in June 2013, resulting in high monthly inflation figures in June, July and August. Since September, however, inflation is back under control. Bank Indonesia's inflation forecast for 2014 is roughly 4.5 percent, a normal pace for Southeast Asia's largest economy.

| Source: Bank Indonesia

However, amid the winding down of the quantitative easing program (starting this month) as well as legislative and presidential elections of Indonesia later this year, the rupiah is expected to continue its depreciating trend against the US dollar and Euro in the months ahead.

Meanwhile, the positive trade and inflation data may be a reason for Bank Indonesia to keep its benchmark interest rate (BI rate) at 7.50 percent at the next Board of Governor's Meeting (scheduled for 9 January 2014). Between June 2013 and November 2013, the central bank gradually raised its BI rate from 5.75 percent to 7.50 percent, thus limiting economic growth in order to curb inflation and support the rupiah exchange rate, while trying to make Indonesian assets more attractive in the eyes of foreign investors (after large capital outflow from the country's capital markets had emerged from late May 2013).

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