Indonesia’s Current-Account Deficit Grew to 2.3% of GDP in Q2, BI Estimates
Jakarta. Indonesia’s current-account deficit likely widened in the second quarter of the year to 2.3 percent of gross domestic product, a central bank official said on Wednesday.
Mirza Adityaswara, Bank Indonesia’s senior deputy governor, told reporters that foreign companies had been repatriating dividends abroad in the last three months, cancelling out surpluses from the country’s external trade in the current-account balance.
Indonesia’s current account, which records all goods and services trade, income transfers and remittances, recorded a deficit of 1.85 percent of GDP in the first quarter, narrowing from 2.95 percent of GDP at the end of last year.
Agus Martowardojo, Bank Indonesia’s governor, said on Wednesday that the country’s current account was in “a good and guarded condition.”
The central bank expects the trade surplus to help lower the current-account deficit to less than 2.5 percent of GDP for the full year, Agus said.
The country recorded a seventh straight monthly trade surplus of $477 million in June, narrower than $950 million a month earlier, the Central Statistics Agency (BPS) announced last week.
“Still, we remain vigilant about external conditions,” Agus said. “We must anticipate the market’s confidence in China and our emerging-market trading partners.”
Exports to China and Southeast Asia accounted for 30 percent of Indonesia’s non-oil-and-gas exports in the first half of 2015. Exports to China declined to $6.65 billion, down 26 percent from the same period last year, while exports to Southeast Asia fell 4.8 percent to $13.8 billion.
Declining exports are exacerbating the deficit in the current account, which in turn makes the country dependent on financing from abroad through direct investment, loans or portfolio investments. The latter could leave Indonesia in a hurry should the domestic economy deteriorate or better returns present themselves elsewhere, creating volatility in the currency and financial markets.
Still, debt-rating agency Fitch said last week that Indonesia and its so-called “fragile five” peers – Brazil, India, Turkey and South Africa – were not as vulnerable as smaller-sized emerging economies to capital outflow risks stemming from an expected US Federal Reserve interest rate hike later this year.
“Fears about a sudden reversal of capital inflows to EMs may be overdone. Perceptions of huge inflows generated by ultra-loose US monetary policy may be misplaced,” Fitch said. The agency noted that US capital outflows were lower during quantitative easing than in 2004-2007.
Fitch said narrowing the current-account deficit and boosting the foreign exchange reserve would help Indonesia fend off the shock. “Credibility of the macroeconomic framework and policy response” would also be important in mitigating the risk, it said.
Bank Indonesia is always in the foreign exchange market, especially when the rupiah is undervalued, Mirza said.
The rupiah is trading at 13,368 to the US dollar, down 7.46 percent for the year. The currency is trading near its lowest level since August 1998.
GlobeAsia
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