I

ndonesia'€™s balance of payments (BoP) surplus surged in the second quarter of this year from the previous quarter, as a boost in capital inflows outweighed the deterioration in the nation'€™s external account.

The balance of payments recorded a US$4.3 billion surplus in the second quarter thanks to a $14.5 billion surplus in the capital and financial account as funds flowed into the country from overseas in the forms of both portfolio and direct investments Bank Indonesia (BI) announced on Friday.

'€œAmid ongoing global financial market uncertainty, the continued strong confidence of foreign investors in Indonesia'€™s economic prospects bolstered the capital and financial account surplus,'€ the central bank wrote in a statement.

In addition, Indonesians'€™ repatriation of overseas investments also boosted the capital account, said Hendi Sulistiowati, the executive director of BI'€™s economic statistics and monetary department.

A lot of Indonesian banks withdrew their nostro accounts '€” local bank'€™s accounts held overseas '€” in the second quarter and deposited the funds in the country as a result of BI'€™s financial-deepening programs, which began in the second quarter, she explained.

The central bank has created a Foreign Exchange Market Committee (FEMC) consisting of forex transaction players, including banks, to boost forex transactions and instruments in the still-shallow market in order that volatility in the forex market can be reduced.

The significant increase in the capital and financial account in the three months ending June this year has compensated for the country'€™s ever-widening current-account deficit, which is a major worry among investors.

The current-account deficit '€”which is the broadest measurement of international trade that
includes exports, imports, services and transfers '€” rose to $9.1 billion in the second quarter from $4.2 billion in the first quarter due to a large deficit in the oil-and-gas trade balance.

Indonesia'€™s export ban on raw mineral products also hurt exports. Meanwhile ballooning consumption of subsidized fuel has led to the country importing more oil during a period of global geopolitical tensions that have spiked global oil prices.

The second quarter current-account deficit figure is equivalent to 4.3 percent of the nation'€™s GDP, which BI considers an improvement compared to the 4.5 percent booked in the same period last year, which prompted massive sell-offs of Indonesian financial assets.

'€œThis improvement is mainly attributed to a higher non-oil and gas trade surplus in line with lower imports following moderation in domestic demand. Nevertheless, the increased non-oil and gas trade surplus was insufficient to offset the burgeoning oil and gas trade deficit,'€ BI said in its statement.

The surplus in Indonesia'€™s balance of payments in the three months ending June meant the central bank'€™s reserves rose to $107.7 billion as per June compared to $102.6 billion in March.

'€œThese reserves can adequately cover 6.1 months of imports and servicing of government external debts, well above the international standards for reserves adequacy,'€ BI said.

The latest figures from BI showed the forex reserves increased to $110.5 billion by the end of July.

BI has projected that the country'€™s balance of payments will improve by the end of this year as manufacturing industry is predicted to grow as demand from developed countries rises.

'€œWith a growing economy in many developed countries, demand for our manufacturing products will surge,'€ Hendi said.

Non-oil and gas exports would also rise as a number of miners, such as Freeport, would resume exporting their products, while imports might decline as the country'€™s GDP declined, she said.

'€œUnder those assumptions, we also expect that the country'€™s current-account deficit will hit $27 billion by year-end, a decrease from the $29.13 billion last year,'€ she said.