Economic reforms may help Indonesia’s balance of payments stay positive throughout the year despite the first-quarter deficit revealed in a recent data release.

Bank Indonesia (BI) announced on Friday a US$287 million deficit in balance of payments (BoP) over the first quarter.

The figure was a reverse of last year’s results, which were a surplus of $5 billion for the year and of $1.3 billion in the first quarter of 2015.

The BoP report, issued on a quarterly basis, reveals there was a $4.7 billion current account deficit that trumped a $4.2 billion surplus posted by capital and financial accounts.

The current account comprises the trade balance in goods, services and primary and secondary incomes.

Capital and financial accounts, meanwhile, contain foreign direct investment (FDI), portfolio investments, financial derivatives and other investments.

BI’s executive director for statistics Hendy Sulistiowati said that the deficit in capital and financial accounts reflected an ongoing weak economy, but added that the slowdown had put the brakes on offshore corporate borrowing withdrawals.

The central bank attributed the surplus in capital and financial accounts to higher direct investments and portfolio investments, namely in stocks and bonds.

At the end of the first quarter, the current account deficit stood at 2.1 percent of GDP, down from 2.4 percent posted at the end of the fourth quarter of 2015.

BI predicts that the deficit will widen to between 2.2 percent and 2.5 percent in 2016 as the economy picks up pace.

“We predict that improvements in the manufacturing sector and overall economy will trigger more debt withdrawals,” Hendy said.

However, she said that the widening deficit would not be as detrimental as the historically high 4.4 percent deficit reported in the second quarter of 2013.

Separately, BI Governor Agus Martowardojo insisted that the negative balance of payments in the first quarter was normal and that the situation would turn positive by the end of this year.

Meanwhile, Bank Central Asia (BCA) economist David Sumual said some types of FDI had started to shift to export-oriented and labor intensive industry sectors such as manufacturing, as opposed to commodity-related sectors, in recent years.

He argued that the government should accelerate existing investments trends instead of developing initiatives to improve exports amid weak global trade.

The momentum needed to attract more investments could be coupled with the long-awaited rating upgrade from S&P Global Ratings, he added.

“Investors are still waiting for the upcoming tax amnesty law and realization of various economic stimulus packages. They are also waiting for some pending government regulations [PP] related to a number of deregulations in the packages,” he said.

Glenn Maguire, ANZ chief economist for South Asia, ASEAN and the Pacific, expressed a similar view in his latest research note on the tax

Amnesty, saying the awaited law could be a huge boon for Indonesia, even if it fell short of targets, potentially bringing in as many dollars as there is FDI inflow.

Such a scenario, Maguire said, could lead to a stronger, more sustained balance of payments position as well as a favorable currency assessment and stability of capital flows.

— Prima Wirayani contributed to the story
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