B

ank Indonesia (BI) has forecast the country'€™s current-account deficit, the major worry among foreign investors, might see a better than expected improvement in 2014 on the back of falling global oil prices and the recent adjustment in fuel prices.

The annual current-account deficit, a country'€™s broadest measurement of international trade, could fall to below 3 percent of gross domestic product (GDP) by the end of this year, BI deputy governor Hendar Harahap said Thursday.

That compares with 3.4 percent of GDP, equivalent to US$28.4 billion, that Indonesia recorded throughout last year. BI had initially estimated that this year'€™s deficit would narrow to only 3.1 percent.

'€œAs a net oil importing country, we benefit from the falling oil prices. Every one dollar fall in oil prices could narrow our current account deficit by approximately $170 million,'€ Hendar told reporters at his Jakarta office.

This year is a bear market for oil prices, with benchmark Brent crude oil already falling by more than 35 percent since hitting its yearly peak of $105 in June.

On the commodity market in the London-based ICE Futures Europe Exchange, the price for Brent crude oil for January settlement fell to $69.92 per barrel this week, the lowest level in four years, according to Bloomberg.

Indonesia imports around 500,000 barrels of the estimated 1.5 million barrels of oil products it consumes each day, with the country expected to become the world'€™s largest gasoline importer by 2018, according to Reuters.

The high oil imports have weighed on Indonesia'€™s current account posture. In the third quarter of this year, the country recorded a $3.1 billion deficit in the oil and gas trade balance, compared to a $4.7 billion surplus in the non oil and gas trade balance, BI data showed.

University of Indonesia (UI) economist Faisal Basri said Thursday that the decline in oil
prices could contribute to a $10 billion shrinkage in the oil-trade deficit next year, ultimately
narrowing the country'€™s current account deficit to only 2 percent of GDP in 2015.

'€œMy forecast is the rupiah then might strengthen to 10,000 [per dollar] next year,'€ said Faisal, who lashed out against the '€œmisleading'€ fears of BI governor Agus Martowardojo over the potential outflows that could pressurize the rupiah due to the possible interest rate hike in the US.

Data from the Jakarta Interbank Spot Dollar Rate (JISDOR) on Thursday showed the rupiah depreciated 23 basis points to 12,318 per dollar, the weakest level in six years, in line with the fall in Asian currencies, which all tumbled amid the broad-based strengthening of the US dollar.

The improvement in Indonesia'€™s current account deficit would only strengthen the rupiah in the long term, at least for the next six to 12 months from now, said Sean Yokota, a currency strategist with SEB, a Stockholm-based investment bank.

'€œForeign-exchange markets usually focus on one thing at a time and right now it is all about the strength of the dollar and the US economy. Until this changes, the rupiah will weaken short term, even if the current account improves,'€ he explained Thursday in an e-mail interview.