Current Account Deficit Hits 4-Year High in Second Quarter

The combined current account deficit for the first half was at 2.6 percent of GDP, below the 3 percent mark Bank Indonesia considers safe for the economy. (Antara Photo/Umarul Faruq)

By : Adinda Normala | on 10:43 PM August 10, 2018
Category : Business, Economy

Jakarta. The central bank is confident that Indonesia will keep the current account deficit below 3 percent this year with efforts to decrease oil imports and increase revenue from tourism.

The current account deficit — which records a country's goods and service trade, remittance, dividend and interest payments with other countries — rose to $8 billion, or 3 percent of gross domestic product, in the second quarter, from $5.7 billion, or 2.2 percent of GDP, in the first quarter.

The deficit, the highest in nearly four years, is likely to stoke concerns among foreign investors about the country's stocks and bonds, which are already under pressure from the weakening rupiah.

"The deficit increased because it is in line with the increase in economic activity, reflected in the Indonesian economy growth of 5.27 percent, which was driven by consumption and investment," Yati Kurniati, Bank Indonesia's head of statistics department, said in a press conference.

Imports of raw materials and capital goods were on the rise, coinciding with the usual period for companies' dividend transfers and foreign debt payments, Yati said.

The combined current account deficit for the first half was at 2.6 percent of GDP, below the 3 percent mark the central bank considers safe for the economy.

"[It] is still normal and fine. Bank Indonesia is still able to keep the current account deficit under 3 percent. The government and BI are already aware of the widening deficit so we coordinate to keep it more under control," Yati said.

Yati said the government's move to require all diesel engines to use biodiesel by the end of this month will help cut oil imports and save the country's foreign exchange reserves $5.9 billion a year. Previously, the government only used biodiesel for subsidized fuel.

"We will have to gain forex reserves from every source, especially tourism … Thailand gains a large amount of forex reserves from it, and we have the potential of doing the same," Yati said.

Indonesia's balance of payments saw a deficit of $4.3 billion in the second quarter, the widest since the third quarter of 2015, because its financial and capital accounts were in a combined surplus of only $4 billion, which was not enough to cover the current account gap.

David Sumual, Bank Central Asia's chief economist, said the current account deficit was bigger than the 2.8 percent he had expected.

"We see that the rupiah is now under pressure. It looks like it will remain so," he said.

The rupiah has lost 6 percent of its value against the dollar so far this year, pressured by concerns about the country's twin deficits and rising US interest rates, which are prompting emerging market investors to move capital back to assets in America.

BI's Yati said the government's issuance of dollar and euro bonds in April helped portfolio investments in the second quarter, but net outflows in the stock market kept the surplus in the financial account in check.

Additional reporting by Reuters.

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