Third Economic Policy Package Being Prepared by Indonesian Government
Indonesian Economic Minister Hatta Rajasa said that the government is currently engaged in preparing a third economic policy package that aims to reduce the country's current account deficit. In August and December 2013, the government had already implemented two policy reform packages as Indonesia's wide current account deficit and high inflation in combination with the looming end of the Federal Reserve's quantitative easing program led to large capital outflows, thus resulting in sharp rupiah depreciation.
Rajasa explained that this third package, which may be implemented in the first quarter of 2014, deals with the issue of foreign companies' profit repatriation. The Indonesian government would like to see these profits stay within Indonesia by making it more attractive for foreign companies to re-invest profits in Indonesia.
The government also wants to reduce imports of oil and gas by continuing its oil-to-gas conversion program. This program has had reasonable success so far in limiting Indonesia's widening trade deficit. The deficit in the country's oil and gas sector has been the main cause for Indonesia's general trade deficit.
Through these strategies, the government would like to see the current account deficit ease to two percent of gross domestic product (GDP) in 2014. In the second quarter of 2013, this deficit had hit a record high at 4.4 percent of GDP. Indonesia's central bank stated the less ambitious target of reducing the current account deficit to below the 3 percent of GDP mark.
Further Reading:
• 1st Package: Indonesian Government Releases 'Emergency Plan' to Support Economy
• 2nd Package: Indonesia's New Fiscal Policies to Curb Imports and Support Exports