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Jakarta Post

Swelling deficits are serious matter, economists warn

  • News Desk

    The Jakarta Post

Jakarta   /   Thu, December 20, 2018   /   12:07 pm
Swelling deficits are serious matter, economists warn University of Indonesia economist Faisal Basri (The Jakarta Post/vny)

The swelling trade and current account deficits are a serious matter for the country’s economy as it will negatively affect the rupiah’s performance and the country’s resistance to the external pressure triggered by global economic uncertainty, economists say.

“The US$7.5 billion trade deficit is not a simple thing. Trade deficits occurred in eight out of the 11 months,” said senior economist Faisal Basri as quoted by kompas.com on Thursday.

He added that the current trade deficit figure was the worst in history, as the trade deficit had never before reached $7.5 million since the country gained its independence in 1945.

Faisal, a University of Indonesia lecturer, blamed the failure of reform policy during President Joko “Jokowi” Widodo’s administration that prevented the country from boosting its exports.

On Monday, Statistics Indonesia (BPS) announced that November’s trade deficit reached US$2.05 billion, surpassing July’s $2.03 billion trade deficit, which was then the highest deficit in the last five years.

The results have brought the year-to-date trade balance to minus $7.52 billion, with surpluses recorded only in March, June and September. The increase was triggered by a $1.46 billion monthly deficit in oil and gas trade despite declining oil prices.

“The reform in Pak Jokowi’s era only occurred in the first year of his administration. After that it only dealt with oil affairs,” Faisal said, referring to the government’s effort to maintain the current price of subsidized fuels that had contributed to the swelling of the subsidy allocation.

Meanwhile, asset management company Samuel Aset Manajemen economist Lana Soelistianingsih said the widening trade deficit was worrying because it would see the current account deficit swell to higher than 3 percent, although previously, the government expressed its optimism to be able to maintain the figure below 3 percent.

“It is worrying because transactions in goods usually create a surplus, while other transactions produce deficits. However, now our transactions in goods are in deficit,” she told kontan.co.id on Wednesday.

Lana said she had not made detailed calculations on the current account deficit in 2018, but she believed it was unlikely the figure would be lower than 3 percent.

“Our estimation is that the current account deficit will be between 3.2 and 3.3 percent of GDP,” she said, adding that the payments of foreign debt installments and of dividends, which were usually due at the end of the year, would worsen the current account deficit.

She warned the swelling current account deficit would affect the rupiah’s performance. “Even if the rupiah can be maintained around Rp 14,300, the announcement of the current account deficit would negatively affect the currency,” she added. (bbn)