Financial Transactions Still a Mainstay in Balance of Payments

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JAKARTA, KOMPAS —The surplus in Indonesia’s balance of payments is supported by capital and financial transactions. Consequently, the country’s economic structure is vulnerable to global fluctuations.

The support from capital and financial transactions mainly comes from portfolio investments, which may easily come and go in a country’s financial market.

In the first quarter of 2019, according to a Bank Indonesia (BI) release, Indonesia enjoyed a surplus of US$2.42 billion in its balance of payments. In the same period, its current account deficit reached US$6.97 billion. The current account deficit was countered by a surplus of US$10.05 billion in financial transactions, thereby resulting in a balance-of-payment surplus.

The current account deficit, equal to 2.6 percent of the gross domestic product (GDP), was deeper than the US$5.2 billion (2.01 percent of GDP in the first quarter of 2018 and the US$2.02 billion (0.84 percent of GDP) in the first quarter of 2017.

“Consequently, the rupiah’s exchange rate against the US dollar has yo-yoed. The balance of goods and services must be improved to make our source of US dollars more varied,” dean of the University of Indonesia’s school of economics and business, Ari Kuncoro, told Kompas on Friday, May 10.

Ari said that regional administrations must be involved in strengthening the domestic economic structure, including by empowering the tourism sector, in order to increase export of services. Regional administrations, for instance, can build accommodations and improve infrastructures in line with the needs of foreign tourists.

Furthermore, regional administrations also have a role in the receipt of foreign exchange through remittance. The skills of Indonesian migrant workers must be improved to increase their added value. “In the current condition, if we wish to have high economic growth, imports will have to be increased. Challenges remain in the effort to improve the balance of goods,” Ari said.

There was a surplus of US$1.06 billion in the balance of goods in the first quarter of 2019. Meanwhile, there was a deficit of US$1.79 billion in the balance of services.

The balance of goods in the current account is being pressured by the deficit of US$1.98 billion in the oil and gas balance, among other factors. In response to this, the government has stopped its import of diesel and jet (avtur) fuels in May 2019.

Coordinating Economic Minister Darmin Nasution said that the government began reducing its diesel and jet fuels toward zero in May 2019. As a substitute, Indonesia will process crude oil from domestic explorations into diesel and jet fuels.

Darmin said this had contributed to reducing Indonesia’s crude oil exports. In the first quarter of 2019, there was a deficit of US$3.73 billion in the oil trade balance. The deficit occurred because Indonesia exported US$909 million worth of oil and yet imported US$4.64 billion worth of oil.Energy and Mineral Resources Ministry Oil and Gas Director General Djoko Siswanto reassured that state energy giant PT Pertamina no longer imported CN-48 diesel fuel and jet fuel in May 2019. “Current production of domestic refineries is enough [to fulfill domestic demands],” he said.

Synergy

Separately, Industry Ministry staff on business climate and investment affairs Imam Haryono said that development of productive business activities outside Java would be important to achieve economic equality.

Business players and the government must synergize with each other to develop regional business activities and investment. “In the era of Industry 4.0, regional governments must transform themselves from regulator to facilitator and from accelerator to collaborator,” he said.

Meanwhile, Indonesian Employers Association [Apindo] executive director Danang Girindrawardana said that permit issuance and overlapping authorities between province and regency/city administrations were among the most urgent problems to resolve.

Ari said that overcoming the egocentrism of central and regional governments was a major challenge in pushing for exports and investments. (KRN/JUD/CAS)

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