Based on the latest data of Indonesia’s Statistics Agency (BPS), Indonesia’s trade deficit was recorded at USD $1.02 billion in August 2018. Although improving from the USD $2.03 billion trade deficit one month earlier (which constituted Indonesia’s biggest monthly trade deficit in five years), the deficit remains robust and therefore causes persistent concerns about the country’s current account deficit and the rupiah exchange rate.
The main cause of Indonesia’s August trade deficit are sharply rising oil & gas imports. Strengthening global crude oil prices in combination with the fragile rupiah imply a burden on imports. Moreover, considering winter is coming, crude oil prices are expected to rise further in the months ahead amid rising demand.
Indonesia’s total exports rose 4.15 percent year-on-year (y/y) to USD $15.82 billion in August 2018. However, the nation’s total imports grew more impressively at 24.65 percent (y/y) to USD $16.84 billion over the same period.
BPS Head Suhariyanto attributed the August trade deficit to declining coal exports and rapidly rising oil & gas imports. Coal exports fell from USD $2.34 billion in July 2018 to USD $1.96 billion in August 2018, while oil & gas imports rose 14.5 percent month-on-month (m/m) and 51.4 percent on an annual basis to USD $3.05 billion in August 2018. Crude oil imports in fact soared 67.6 percent (m/m) to USD $1.04 billion in August 2018, the highest figure in recent years and contributing to Indonesia’s highest monthly oil & gas deficit (recorded at USD $1.66 billion) in - at least - the past two years.
Meanwhile, Indonesia’s non-oil & gas trade surplus was only recorded at USD $639.6 million in August 2018. In terms of non-oil & gas exports, the biggest export markets of Indonesia are China, USA, Japan and India. Meanwhile, Indonesia imports most non-oil & gas products from China, Japan, Thailand, and Singapore.
So far in 2018, Indonesia’s trade balance shows a USD $4.09 billion deficit in the first eight months of 2018 (January-August 2018 period), with the only monthly trade surpluses occurring in March and June. This is a huge difference compared to Indonesia's USD $9.1 billion trade surplus in the January-August 2017 period.
Indonesian Finance Ministry Sri Mulyani Indrawati said the big deficit in the oil & gas balance is a major concern. However, she emphasized that the government is eager to reduce Indonesia’s reliance on oil imports in order to improve the balance. For example through the recently implemented presidential regulation that requires all diesel engines to use B20 biodiesel (which came into effect on 1 September 2018). This regulation is estimated to save Indonesia up to USD $5.9 billion in annual oil & gas imports.
As a result of the weak trade balance, Indonesia’s current account deficit may remain at (or near) 3 percent of gross domestic product (GDP) in the third quarter of 2018. This would imply that the rupiah is likely to remain under pressure, especially in case external pressures persist. So far in 2018 the rupiah has depreciated about 8 percent against the US dollar. However, the weak rupiah has not led to restrained demand in Southeast Asia’s largest economy. This is partly attributed to the government’s generous energy subsidies ahead of the 2019 elections.