JAKARTA: Bank Indonesia, the central bank of Indonesia, expects the country’s current account deficit to increase to USD $4.8 billion – or about 2.2 percent of gross domestic product (GDP) – in full-year 2016. Although the deficit remains high – and is forecast to go higher – there is optimism that this increase is caused by rising imports of capital goods and raw materials. These goods and materials are used to manufacture new products (that may be exported from Indonesia) and therefore have a positive impact on the economy (in contrast to consumer product imports that bring few future economic value).
Agus Martowardojo, Governor of Bank Indonesia, informed that – although Indonesia’s trade balance showed a surplus in August (USD $293.6 million) – the country’s trade surplus narrowed on a month-to-month basis due to a smaller non-oil & gas trade surplus and a growing oil & gas deficit. The narrowing non-oil & gas surplus is caused by a surge in imports of raw materials and capital goods, such as mechanical and electrical machinery equipment as well as plastic (articles). This points at “gains in terms of domestic economic activity”.
For the short-term, however, it implies some additional pressures on Indonesia’s current account balance. Therefore, Bank Indonesia expects the nation’s current account deficit to touch 2.4 percent of GDP – or about USD $4.9 billion) – in the third quarter of 2016. Although the economies of the USA and China are remain bleak (curtailing demand for Indonesian export products), Martowardojo said markets have somewhat calmed after the Federal Reserve and Bank of Japan meetings last week (in fact opening the door to capital inflows on the short-term), while the oil price has shown a cautiously rising trend (hence encouraging other commodity prices to go up as well). This should have a positive impact on Indonesia’s current account balance.
