Current Account Remains Indonesia's Achilles' Heel; Trade Balance Concerns Persist
Indonesia’s current account deficit widened to USD $31.1 billion, equivalent to 2.98 percent of the country’s gross domestic product (GDP), in full-year 2018. It is a big deterioration compared to the USD $17.29 billion deficit (1.7 percent of GDP) in the preceding year. It means the current account balance remains the Achilles’ heel of the Indonesian economy, one that – potentially - triggers rapid and large capital outflows in times of global economic turmoil.
Challenges for Indonesia’s current account deficit are not expected to ease in the first quarter of 2019. Yati Kurniati, Executive Director & Head of Statistics Department at Bank Indonesia, said the current account deficit will definitely continue into Q1-2019 amid Indonesia’s subdued export performance, subdued global economic growth, and declining commodity prices. These interrelated factors are crucial for Indonesia when determining whether the country will see a deficit or surplus, simply because Southeast Asia’s largest economy remains highly dependent on (raw) commodity exports in terms of its export performance.
Despite these challenges, Bank Indonesia is optimistic that the current account deficit can improve to 2.5 percent of GDP by the end of 2019. The central government imposed several policies to encourage a healthier current account deficit, including a higher import tax on various consumer goods, the extended B20 biodiesel program, and fiscal incentives for exporters of natural resources (encouraging them to store their foreign exchange earnings in Indonesia).
Read the full article in the February 2019 edition of our monthly research report. You can purchase the report by sending an email to info@indonesia-investments.com or a WhatsApp message to the following number: +62(0)8788.410.6944
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