LPS: Indonesia's Current Account Deficit Widens in 2016 & 2017
The Indonesia Deposit Insurance Corporation (in Indonesian: Lembaga Penjamin Simpanan, or LPS) expects to see Indonesia's current account deficit growing to USD $20.8 billion, equivalent to 2.3 percent of the country's gross domestic product (GDP), in 2016. In the following year, the institution estimates that the current account deficit will continue to widen toward USD $25.1 billion (2.5 percent of GDP) due to an expected decline in Indonesia's trade surplus.
The current account balance is known as the broadest measure of a nation’s international trade. This balance covers transactions in goods, services, factor income (income derived from selling the services of factors of production), as well as transfers. It basically means that a country is a net borrower from the rest of the world when it posts a current account deficit (CAD). As such, the country needs capital or financial flows to finance this deficit. Although a CAD is not necessarily bad, countries plagued by a wide CAD are usually more susceptible to capital outflows.
The LPS also expects to see an improvement in the country's capital and financial account surplus from USD $14.9 billion in 2015 to USD $26 billion in 2016 as the recent US interest rate hike has somewhat eased global uncertainty thus providing way for more portfolio investment in Indonesia as well as higher foreign direct investment (FDI). However, concern about low crude oil prices and China's slowdown remain major issues.
LPS is an independent institution that functions to insure depositor’s funds and participates in maintaining stability in Indonesia's banking system.
Indonesia's central bank (Bank Indonesia) recently stated that the country's current account deficit is expected to have improved from 3 percent of GDP in 2014 to 2 percent of GDP in 2015.
Further Reading:
• Current Account Balance of Indonesia
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