The central bank of Indonesia (Bank Indonesia) expects that the country’s trade balance will show a USD $500 million surplus in February 2015 on the back of increased manufacturing exports, the higher price of crude palm oil, and lower oil imports. In January, Indonesia’s trade balance recorded a USD $710 million surplus, divided into a USD $748 million surplus in the non-oil & gas trade balance and a USD $38.6 million deficit in the oil & gas trade balance.
Juda Agung, Executive Director of Economic and Monetary Policy at Bank Indonesia, said that if the Indonesian government will quickly introduce new measures to resolve the country’s wide current account deficit, the positive effects will be felt soon. Earlier this week, the government announced that it seeks to impose a number of new measures in a move to curb the country’s current account deficit - the widest measurement of foreign exchange flows, including trade, services, interest payments and remittances - and support the rupiah exchange rate. These measures include temporary anti-dumping import duties (although authorities declined to inform which imported products are targeted), while the Finance Ministry will offer tax breaks (tax allowance) to those companies that export over 30 percent of their production. The government is also planning to issue a regulation exempting shipyards from value added tax (VAT). Lastly, the government will offer tax allowance for companies reinvesting their profits in Indonesia instead of transferring these to the home country. Agung, who just arrived back from business visits to the USA and Hong Kong, added that countries such as India and Indonesia - which both are implementing structural reforms regarding energy, infrastructure, tax and the maritime sector - are still highly attractive to investors from the USA and Hong Kong.
In 2014, Indonesia had a current account deficit of USD $6.1 billion, equivalent to 2.95 percent of gross domestic product (GDP). Earlier, Bank Indonesia stated that the current account deficit may widen to 3.1 percent of GDP in 2015. This is a matter of concern as a current account deficit signals that the country is relying on foreign inflows of capital and thus makes it vulnerable to severe capital outflows in times of economic turmoil.