Finance Minister Agus Martowardojo on Monday said that Indonesia had likely posted a current account deficit of $21.5 billion, equal to 2.4 percent of the country’s estimated gross domestic product. On the same day, the rupiah weakened 0.65 percent to 9,738 per US dollar, continuing last week’s slide prompted by analysts’ concerns that last year’s current account deficit might be more than the official forecast.
Bambang Brodjonegoro, head of the Finance Ministry’s fiscal policy office, said in a statement on Dec. 31 that the current account deficit in the fourth quarter might narrow to 2.3 percent of GDP, due to an improving trade balance. In the third quarter, the current account deficit stood at $5.4 billion, or 2.4 percent of quarterly GDP. Indonesia has been posting current account deficits for the past three quarters due to weakening exports on slow global demand and fluctuations in the capital markets.
Meanwhile, increasing imports have been driven by high domestic demand for capital goods as well as fuel. Agus warned that the government must find a way to bring under control subsidized fuel consumption, a major drag on the current account deficit as well as the state budget. The current account is the balance of goods and services traded, income transfers and remittances. A deficit in the current account puts pressure on the currency and the state budget. A weaker currency also means Indonesians spend more on imported goods.
Agus explained that the energy subsidy burden had soared last year. He said fuel subsidy spending was estimated at Rp 211.9 trillion ($21.2 billion), well past the targeted Rp 137.4 trillion. Meanwhile, the electricity subsidy was expected to reach Rp 94.6 trillion, exceeding the target of Rp 65 trillion.
“This burgeoning subsidy budget has also contributed to worsening our current account deficit. The oil and gas trade deficit widened to a historic high in November and may worsen further in the absence of any significant countermeasure, which will put pressure on the exchange rate,” Helmi Arman, chief economist at Citibank Indonesia, told the Jakarta Globe on Monday.
Last year, the rupiah depreciated by 6 percent against the dollar due to the pressure from the current account deficit. Agus signaled that the government may adjust the price of subsidized fuel if the subsidy burden threatened Indonesia’s fiscal health. The government has thus far only restricted the use of subsidized fuels for state-owned vehicles.
Additional reporting from Bloomberg
source : the jakarta globe
Additional reporting from Bloomberg
source : the jakarta globe
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