We need to get our current account balance in check if we want to get the most out of the 2022 recovery momentum.
he year 2022 is just around the corner and the air is crackling with hopes of a global economic recovery. After 20-plus months of succumbing to the COVID-19 pandemic, we all are looking forward to better days ahead. However, epidemiologists have yet to agree on how the new variant, Omicron, might change that optimism.
Omicron aside, markets seemed poised to ring the new year with a bang. For example, third-quarter data from Bloomberg suggests that the price of natural gas in the New York Mercantile Exchange (NYMEX) has increased by over 120 percent since January. Energy demand is a good economic indicator although at times skewed by the severity of winter in the north.
Natural gas and coal are highly substitutive. As such, soaring coal prices should not come as a surprise. Data from ICE NewCastle, the futures market for coal, suggests that prices have more than doubled within this year. Coal was priced at US$85 per metric ton in January and has been steadily increasing before peaking in the $200 range. Today, it continues to hover at the $150 range.
Indonesia, which according to Bank Indonesia (BI) exported over 330 million tons of coal up to September, stands to benefit from this global pent-up demand. However, as we have learned from decades of resource dependency, we cannot rely on coal dividends for sustainable economic growth in the recovery year we hope 2022 to be. We would also need to pay attention to the looming supply-chain crisis that might hit our shores.
First and foremost, we need to get our current account balance in check if we want to get the most out of the 2022 recovery momentum. For the most part, Indonesia’s current account balance has been in deficit for the last five years. The current account in the second quarter of 2021 booked a $2.2 billion deficit, which is equivalent to 0.8 percent of gross domestic product (GDP), a marked increase from the previous quarter's deficit of $1.1 billion (0.4 percent of GDP). One major contributor to our deficit is the services account. Even when the current account balance reported a surplus of $4.5 billion in the third quarter of 2021 as the latest data suggests, the services account is still $3.6 billion in deficit.
The deficit in the services account is attributable to increased payments for largely imported transportation services. The cost of goods transportation reached a staggering $6.3 billion in 2020 and it accounted for 73 percent percent of the current deficit in transportation services. Because 90 percent of global trade is ocean-bound, our problem with the current transportation service deficit is reflective of Indonesia's export-import trade balance.
There are two main explanations for the worrying deficit. First, global shipping freight rates are still very high, which depletes Indonesia's foreign exchange currency as it has to pay for transportation services.
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