The current account balance, the broadest measure of a country's international trade, shows whether a nation is a net lender or net borrower from the rest of the world. Although a current account deficit can be a good matter (namely when the temporary deficit is caused by imports that will lead to future revenue streams), in the case of Indonesia the current account deficit (that started in late-2011) has a more structural nature. Indonesia has always been highly dependent on (raw) commodity prices for its export performance and foreign exchange earnings. However, after the 2000s commodities boom ended, prices went downhill over the past four/five years and so did Indonesia's export performance. Weak commodity prices are a structural phenomenon amid ongoing sluggish economic growth.

Generally, a current account deficit below the 3 percent of GDP mark is considered sustainable although the country continues to accumulate net foreign liabilities and this may pose risks over time. The central bank of Indonesia (Bank Indonesia) stated earlier that it does not see the country's economic stability at stake with the current account deficit estimated at 2.6 percent of GDP this year.

In the first and second quarters of the year economic growth of Indonesia is expected to rise 5.1 percent (y/y) and 5.2 percent (y/y), respectively. In first instance accelerating GDP growth comes on the back of government spending on infrastructure projects. In the second half of the year the private sector is expected to increase investment and household consumption. Combined it gives rise to more demand for imports of capital goods from abroad. Because these imports are made for productive investment purposes they will give rise to future revenue streams and therefore we do not regard Indonesia's rising current account deficit this year as a threat to the country's economic/financial fundamentals.

Macroeconomic Ratios Indonesia:

    2010   2011   2012    2013    2014    2015
Gross Domestic Product
  (annual percent change)
   6.4    6.2    6.0     5.6     5.0     4.8
• Consumer Price Index
  (annual percent change)
   5.1    5.4    4.3     8.4     8.4     3.4
Current Account Balance 
(percent of GDP)
   0.7    0.2   -2.8    -3.3    -3.1    -2.1
• Foreign Exchange Reserves
  (in billion USD)
  96.2  110.1  112.8    99.4   111.9   105.9

Sources: World Bank, Statistics Indonesia, Bank Indonesia and International Monetary Fund (IMF)

Indonesia's export performance is not expected to improve markedly this year as key trading partner China continues to be plagued by slowing economic growth. The economy of China may only grow 6.3 percent (y/y) in 2016, implying that downward pressures on commodity prices persist. For each 1 percentage point of slowing GDP growth in China, Indonesia's GDP and export performance will contract by 0.6 percent and 10.2 percent, respectively. This shows the enormous influence of China on Indonesia's export performance and economic growth.

Although capital inflows into Indonesian bonds and stocks were strong so far this year, these inflows are more the result of international developments (such as the perceived delay in another US interest rate hike, negative interest rates that have been adopted by various central banks, and QE programs in Europe and Japan) rather than domestic factors. Between 1 January and 17 March 2016 a total of IDR 46 trillion (approx. USD $3.4 billion) worth of foreign funds went into Indonesian bonds and stocks. This is a superb result. However, the majority of these funds could be hot money that will rapidly find its way back abroad.