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Indonesia books first current account surplus since 2011
Indonesia booked a US$1 billion current account surplus in the third quarter, the country’s first surplus since 2011, as imports fell faster than exports due to weak domestic demand amid the coronavirus pandemic, Bank Indonesia (BI) announced Friday.
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Indonesia booked a US$1 billion current account surplus in the third quarter, the country’s first surplus since 2011, as imports fell faster than exports due to weak domestic demand amid the coronavirus pandemic, Bank Indonesia (BI) announced Friday.
The central bank said the current account surplus was equal to 0.4 percent of the country’s gross domestic product (GDP) and a reversal from the $2.9 billion deficit – 1.2 percent of GDP – recorded in the April-to-June period.
“The gains were supported by a surplus in the goods trade balance in line with improvement in exports amid subdued imports due to weak domestic demand,” the central bank said in a statement.
Indonesia booked a trade surplus of nearly $8 billion in the July-to-September period as the country recorded $40.76 billion in exports and $32.77 billion in imports. Further, Southeast Asia’s largest economy recorded a trade surplus of $3.61 billion in October alone, its largest surplus since 2010.
A surplus in the current account balance will have a positive impact on the rupiah’s exchange value as the surplus means the country receives more foreign exchange than it pays out. The rupiah erased some of its earlier loss against the United States dollar following the announcement on Friday.
The central bank, however, also noted an increase in the services account deficit, as foreign tourist arrivals plunged and imports of telecommunication services increased.
The coronavirus outbreak has prompted several countries to implement lockdowns, preventing their citizens from traveling cross borders, including to Indonesia. Statistics Indonesia (BPS) recorded a 70.57 percent annual slump in tourist arrivals to just 3.56 million in the January-to-September period. Data from the Indonesian Hotel and Restaurant Association show that the tourist industry losses caused by the pandemic so far exceed Rp 100 trillion ($7.1 billion).
BI on Friday also announced a surplus in Indonesia’s capital and financial accounts of $1 billion in the third quarter, down from a $10.6 billion surplus booked in the second quarter.
“This surplus stemmed from inflows of direct investment and other investment,” despite $1.9 billion foreign outflows in portfolio investment due to heightened uncertainty in the global financial markets, the central bank said.
“Other investment transactions saw a surplus driven by a withdrawal of loan commitments [by the government] to support the financing of COVID-19 handling and the national economic recovery program and the withdrawal of private-sector deposits abroad for repayments on foreign loans,” the central bank said.
As a result, Indonesia booked a balance of payments surplus of $2.1 billion in the third quarter. The balance of payments surplus in the second quarter was $9.2 billion.
“The last current account surplus, in 2011, occurred because of the commodities boom, but the surplus recorded in the third quarter this year happened because of a drastic slump in imports,” Bahana Sekuritas economist Satria Sambijantoro told The Jakarta Post on Friday. “This is a negative surplus for the economy because it happened mainly due to cooling economic activity.”
Indonesia plunged into recession for the first time in two decades as the economy shrank 3.49 percent in the third quarter and 5.32 percent in the second quarter amid disrupted business activity and weakening demand.
Satria expected the current account balance to post a slight surplus or a slight deficit in the fourth quarter this year as economic activity improved gradually. “This will help stabilize the rupiah exchange rate or could even strengthen the currency, but BI may not allow the rupiah to become too strong or too weak in order to make it comfortable for stakeholders.”
Separately, Bank Permata economist Josua Pardede said the weak domestic production of goods turned the current account from deficit into its first surplus in nearly a decade, adding that such a deficit might return next year on the back of improved economic activity.
“The current account balance trend usually follows economic trends, meaning that an economic expansion will boost imports of raw materials, capital and consumption goods, all of which will turn the current account back into deficit in 2021,” he told the Post.
The central bank expects a full-year current account deficit below 1.5 percent, BI’s Governor Perry Warjiyo told reporters on Thursday. “In 2021, the current account deficit is expected to remain under control, so that it will further support external sector resilience.”
