Indonesia’s current account balance – which measures the flow of goods, services and investment - remains a source of concern. In the second quarter of 2018 Indonesia’s current account deficit widened to USD $8.02 billion or 3.0 percent of gross domestic product (GDP). It is the biggest quarterly deficit since Q2-2014 and implies that Indonesia is dependent on foreign capital to fund its deficits. This makes investors nervous and therefore foreign funds rapidly exit Indonesia in times of global turmoil.
Hence, Indonesian authorities (the central government and Bank Indonesia) are well aware of the importance to improve the current account deficit. Bank Indonesia’s aggressive monetary tightening in recent months – raising the benchmark by 150 basis points to 5.75 percent in a series of rate hikes - is not related to inflation (which is actually rather low for Indonesian standards at around 3 percent y/y) but purely aims at defending the rupiah and curtailing the current account deficit.
Meanwhile, the central government is also busy implementing programs and strategies to limit imports, hence improving the current account balance. For example, imports of oil into Indonesia contribute significantly to the country’s overall current account deficit as well as trade deficit so far in 2018. Therefore, the government expanded the B20 biodiesel program to include non-subsidized diesel (the program went into effect per 1 September 2018). Previously, only vehicles that used subsidized (Solar-branded) diesel fuel were required to use biodiesel. Indonesian Industry Minister Airlangga Hartarto had earlier stated that the use of B20 fuel would save Indonesia around USD $5.6 billion, annually, in oil imports.
The mandatory use of B20 is also part of the government’s efforts to boost the use of palm oil domestically amid decreasing crude palm oil (CPO) prices in the global market.
Read the full article in the September 2018 edition of our monthly research report. You can purchase this report by sending an email to firstname.lastname@example.org or a WhatsApp message to the following number: +6287884106944
Poll Indonesia Investments:
Where do you think the rupiah will be at the end of 2018?
Voting possible: -
- Above IDR 15,000 per US dollar (45.7%)
- IDR 14,500 - 15,000 per US dollar (26.3%)
- IDR 14,000 - 14,500 per US dollar (12.8%)
- IDR 13,500 - 14,000 per US dollar (5.8%)
- Below IDR 13,500 per US dollar (5%)
- No opinion (4.3%)
Total amount of votes: 600