Indonesia's current account deficit eased much faster than expected. On Thursday (13/02), Bank Indonesia released a press release in which it stated that the deficit was equivalent to 1.98 percent of Indonesia's GDP in the fourth quarter of 2013. Previously, the central bank, Indonesian government and various analysts had estimated that the deficit would ease to around 3 percent of GDP by the end of the year. This significant improvement was caused by a trade surplus in the country's non-oil and gas sector, partly brought about by sharp rupiah depreciation that managed to limit (expensive) imports.

The central bank's Jakarta Interbank Spot Dollar Rate (JISDOR) has appreciated 0.95 percent year to date (up to Thursday 13 February 2014):

Indonesian Rupiah versus US Dollar (JISDOR):

| Source: Bank Indonesia

International investors were highly concerned about Indonesia's current account deficit, which hit a record high of USD $9.9 billion (4.4 percent of GDP) in the second quarter of 2013. This deficit, in combination with sharply accelerated inflation after the government increased prices of subsidized fuels in June 2013, made investors decide to pull a large amount of funds out of Indonesia, thus placing more downward pressures on the rupiah exchange rate. Indonesia was one of the hardest hit emerging economies in terms of capital outflows in 2013 after Ben Bernanke started to speculate about an end to the Federal Reserve's quantitative easing program in late May 2013. However, early monetary policy-making directed at financial stability (including higher interest rates from June 2013) - but coming at the expense of further economic growth - has now brought positive results to Southeast Asia's largest economy: the current account deficit has quickly eased since Q2-2013, foreign exchange reserves have been rising in recent months, inflation is still high (8.22 percent year on year) but estimated to ease more markedly in the first half of 2014, and both the rupiah exchange rate and benchmark stock index (IHSG) have strengthened since the start of the year.

Further Reading:

 Is Foreign Confidence in Indonesia’s Capital Market Restored in 2014?