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View all search resultsRising current account deficit could jeopardize rupiah
Indonesia's current account deficit reached a historic high in the second quarter that, if sustained, would put new pressure on the rupiah’s exchange value.
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PT Industri Kereta Api (Persero), or INKA, prepares an export shipment of container flat top (CFT) wagons ordered by a New Zealand company at Jamrud Nilam Mirah Port in Tanjung Perak, Surabaya. (INKA/-)
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ndonesia has recorded a record current account deficit (CAD) due to skyrocketing global oil prices that could put new pressure on the rupiah if it remains unaddressed.
Bank Indonesia unveiled on Aug. 21 that Indonesia’s CAD in the second quarter sat at a historic high of US$12.5 billion. Equivalent to 3.3 percent of gross domestic product, that marks the highest quarterly deficit ratio since the fourth quarter of 2018.
Economist Intelligence Unit (EIU) Asia analyst Tay Qi Hang told The Jakarta Post on Friday that the reading was “clearly weak, but I would not yet describe Indonesia’s external position as being in bad shape”.
“However, a sustained deficit at this level would cause downward pressure on the rupiah. Indonesia would become more dependent on foreign capital to finance the deficit,” said Tay.
He added that, if such a deficit persisted, it would increase Indonesia’s vulnerability to portfolio outflows, raise external borrowing costs and force BI to keep monetary policy “tighter for longer” just to support the rupiah and preserve investor confidence.
The current account is calculated by adding up the value of all goods, services, and transfers — like worker remittances and investment earnings — entering an economy, and subtracting the value exiting the economy, where services also includes.
A widening CAD means a country requires more foreign currency to pay for imports, services and cross-border income payouts than it generates from its own exports and inflows.
