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Indonesia's central bank (Bank Indonesia or BI) announced on Wednesday (15/05/13) that the country's external balance has improved during Q1-2013 as non-oil and gas trade were up. Indonesia's current account deficit stood at USD $5.3 billion (2.4 percent of GDP) in Q1-2013, compared to the previous quarter's deficit of USD $7.6 billion (3.5 percent of GDP). Indonesia has experienced a widening trade deficit, although it recorded a trade surplus of USD $304.90 in March, the first trade surplus since September 2012.
Below is the official press release of Bank Indonesia:
Indonesia's external balance improved in Q1-2013 as expected. This was reflected in the reduced current account deficit at USD $5.3 billion (2.4 percent of GDP), compared to the previous quarter's deficit of USD $7.6 billion (3.5 percent of GDP). The improvement is explained by a more robust non-oil and gas trade surplus and reduced deficits in the services and income accounts. Non-oil and gas exports in real terms charted renewed gains, following the higher growth in world trade volume, but in nominal terms continued to chart negative growth due to the ongoing decline in export commodity prices. Although non-oil and gas exports marked negative growth, the non-oil and gas trade balance recorded an increased surplus due to the steeper decline in imports compared to exports. This drop in non-oil and gas imports came in response to weakened growth in domestic consumption and investment as reflected in falling imports of consumption and capital goods. At the same time, the more modest deficit in the services account is explained by reduced expenditures on transportation services, in keeping with the drop in non-oil and gas imports, and on travel services, along with the lower numbers of outbound travelers in the aftermath of the hajj pilgrimage season and the end-of-year holiday season. The income deficit also narrowed during the same period, mainly from lower interest payments on external debt. In contrast, the oil and gas trade deficit increased due to the accelerating growth in consumption volume of oil-based fuels and continued decline in oil production.
In other developments, the Bank Indonesia policy for bolstering supply of foreign currency for oil import payment led to a USD $1.4 billion deficit in the capital and financial account. To reduce the depreciation pressure on the rupiah during Q1-2013, Bank Indonesia decided to take over from domestic banks in the provision of most of the foreign currency needed to cover oil imports. This policy succeeded in curbing demand on the forex market and easing the depreciation pressure on the rupiah, hence created room for domestic banks to increase their foreign currency deposits. Accordingly, the deficit in the capital and financial account is explained more by enlarged domestic banks holdings of foreign currency assets, rather than outflows of foreign investment. During this period, the overall value of rupiah-denominated securities purchased by foreign investors, such as Indonesian government bonds and stocks, was ahead of the previous quarter. Foreign direct investment (FDI) again booked a surplus, although not as high as one quarter earlier in keeping with the tapering growth in domestic investment.
Due to the deficits in the current account and capital and financial account, the overall balance of payments for Q1-2013 recorded a USD $6.6 billion deficit. As a result, the international reserves position at the end of March 2013 eased to USD $104.8 billion. At this level, reserves were equivalent to 5.7 months of imports and servicing of government external debt, above the adequacy level of international standards.
In Q2-2013, the overall balance of payments is forecast to improve further, bolstered by a renewed surplus in the capital and financial account that will finance the current account deficit. These upbeat expectations for the capital and financial account are supported mainly by mounting inflows of foreign portfolio investment and foreign direct investment. This is indicated in the considerable increase in foreign capital inflows in April 2013, including inflows from issuances of government bonds, in keeping with the strong fundamentals of the Indonesian economy and the impact of the continued accommodative stance in global monetary policy. Initial sign of improved performance in the Q2-2013 balance of payments is the rise in international reserves at the end of April 2013 to USD $107.3 billion.
Jakarta, 15 May 2013
Difi A. Johansyah
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