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Indonesia`s current account deficit widens

Jumat, 10 Agustus 2012 22:28 WIB | 956 Views
Indonesia`s current account deficit widens
Bank Indonesia - BI (FOTO ANTARA News)
Jakarta (ANTARA News) - Bank Indonesia said the country`s current account deficit widened to US$6.9 billion or 3.1 percent of the country`s Gross Domestic Product in the second quarter of this year from US$3.2 billion or 1.5 percent of the GDP in the previous quarter.

Executive director and public relations chief of the central bank Dody Budi Waluyo attributed the increase in deficit to strong domestic demand when the global economy was on the decline.

Dody said the main cause was shrinking foreign trade surplus to a level not enough to make up for the widening deficit in service and income balance.

Weak demand and falling prices caused a decline in exports of non-oil/gas commodities resulting in lower surplus, he said, adding meanwhile, imports especially imports of capital goods remained brisk on strong domestic demand.

Negative contribution was also recorded the oil and gas sector as surplus in gas trade was not enough to offset deficit in oil trade, he said.

Meanwhile, in service balance deficit widened on an increase in payment for transport service for imports and growing number of Indonesians traveling abroad.

Increase in deficit in income balance was caused by growing profit and interest gained by foreign investors from their growing investment in the country.

High confidence of foreign investors in the country`s economy resulted in significant increase in surplus in capital and financial account.

In the second quarter of 2012, surplus in capital and financial account rose to US$5.5 billion from US$2.5 billion in the previous quarter.

The increase in surplus was recorded both in direct and portfolio investment and foreign borrowings by private sector debts, Dody said.

He said amid the global crisis with no signs of receding, foreign investors still have high confidence in the country`s economy.

However, the capital and financial account surplus was not enough to offset the current account deficit in the second quarter of 2012, he said.

As a result, the country suffered a deficit of US$2.8 billion in its balance of payment, he explained.

The central bank predicted that the condition would improve in the second half of the year, saying the current account deficit would decline to 2 percent of the GDP and surplus would be recorded again in the balance of payments.

The contraction in exports is expected to narrow in the third quarter before fully recovering in the last quarter.

Meanwhile, import growth is expected to be slowed in the whole of the second half of the year, Dody said.

The surplus in capital and financial account is expected to continue to be on the increase both from FDI, portfolio investment and foreign borrowings that overall surplus will be recorded again in the country`s balance of payments.

The forecasts are based on expectation that the global economy and commodity prices would improve in the second semester of 2012.

In addition, investment and imports of capital goods, which have been brisks in the past several years are expected to increase the capacity of the domestic economy and reduce dependence on imports in the future, he said.(*)