The central bank of Indonesia (Bank Indonesia) expects Indonesia's current account deficit (CAD) to widen to 2.4 percent of the nation's gross domestic product (GDP), or about USD $23 billion, in 2017. Therefore, Bank Indonesia Governor Agus Martowardojo said the CAD remains one of the bigger challenges for Indonesia in the foreseeable future. In 2016 the nation's CAD had in fact eased to 1.8 percent of GDP (or USD $17 billion) on the back of a big improvement in the last quarter of 2016.
In Q4-2016 Indonesia's CAD was recorded at 0.8 percent of GDP, the smallest reading over the past five years and significantly improving from a 1.83 percent and 2.16 percent of GDP deficit in Q3-2016 and Q2-2016, respectively.
The current account balance is the broadest measure of a country's international trade. It covers transactions in goods, services, factor income (income derived from selling the services of factors of production), as well as transfers. Thus, when a country posts a CAD it implies that the country is a net borrower from the rest of the world and therefore needs capital or financial inflows to finance this deficit.
Although a CAD is not necessarily a negative matter, a structural CAD indicates that there is an imbalance in the domestic economy. For example, funds are not used for productive investment purposes such as industrial or infrastructure development (which trigger future revenue streams), but merely used for domestic consumption (for example energy subsidies). In the case of Indonesia, there occurred a structural CAD since late-2011 when commodity prices collapsed and therefore the government is now eager to boost the nation's manufacturing industry in order to reduce its reliance on (raw) commodity exports. The nation's dependence on raw commodities for its export performance is a structural imbalance that needs to be tackled.
However, Bank Indonesia Governor Martowardojo said the wide CAD of Indonesia will be somewhat compensated by rising direct investment and portfolio investment in 2017 and therefore is estimated to remain comfortably below the 3 percent of GDP that is regarded the boundary that separates a sustainable from an unsustainable CAD.
Martowardojo also said Indonesia successfully turned a balance of payments deficit of USD $1.1 billion in 2015 into a USD $12 billion surplus in 2016, supported by the strong funds from the capital and financial account balance.