Bank Indonesia (BI) recorded a balance of payments (BoP) surplus of US$ 2.2 billion for this year's second quarter. This was an excellent achievement after the last quarter’s US$ 300 million deficit.
The surplus helped boost foreign exchange (forex) reserves by US$ 2.3 billion to US$109.8 billion at the end of quarter two. In view of these developments, the central bank is confident that the state's balance of payments will remain stable, especially with support from the mix of cautious monetary and macro prudential policies, as well as by reinforcing policy coordination with the government.
"However, BI will continue to watch for external and domestic risks that may affect the overall performance of the balance of payments," the central bank wrote in its Indonesia's Balance of Payments Report for the 2nd Quarter of 2016, released Friday (12/8).(Read: Export Performances Improve, Trade Surplus Soars in June).
Indonesia's balance of payments is transactions between the Indonesian population and residents of other countries within a specified period. Its value is calculated using the ratio of the current account balance and the balance of capital and financial transactions. (Read: Gov't Projects Export Decline to Last Until Year-end).
In the second quarter, the current account deficit dropped from US$ 4.8 billion to US$ 4.7 billion, or two percent of GDP. The current account balance summarises export and import transactions of goods and services, investment income, principal and interest payments on foreign loans, and the balance of cash transfers to and from abroad.
The improved current account deficit happened to the non-oil trade balance, as an impact of higher exports compared to imports. This is the result of an increase in the exports of manufactured products, such as textiles and textile products; vehicles and parts;as well as machinery and mechanical equipment. The increase in exports is also higher than the increase inimports of raw materials.
This non-oil trade performance contributed to the surplus, given the widening in thein the oil and gas trade deficit due to rising world oil prices. It also countered the increase in the service account deficit caused by the seasonal decline in travel service surpluses. (Read: April Trade Balance at a Surplus, but Export still Performing Poorly).
On the previous day, BI's Executive Director for Economic and Monetary Policy Juda Agung said that the maritime sector, including the fisheries and shipping businesses, is a major source of deficit in the services account. Detik.com quoted him saying in the Riau Islands that the "maritime sector contributed 80 percent to the service account deficit."
The maritime sector's significant contribution to the deficit is due to high use of overseas services in its business activities. This includes boat renting, lease to buy boats, insurance, and crane rentals. These deficit-causing activities have been going on for years.
Meanwhile, the capital and financial transaction surplus rose US$ 2.8 to US$ 7.4 billion. This increase was supported by an increase of capital inflows for portfolio investment, which reached US$ 8.4 billion in the second quarter, supported by the issuance of global government bonds and foreign buys on stocks and rupiah-denominated state securities (SBN). In addition, the direct investment (FDI) surplus increased to US$ 3 billion.
This capital and financial balance was booked in direct investments, portfolios and other short-term investments, as well as foreign loans by banks, aids and grants from the state and other institutions. However, a number of economists regard this surplus as a sign that the Indonesian economy is still growing at a moderate rate.
Bank Central Asia economist David Sumual believes the improvement in Indonesia's balance of payments may last the end of the year. Unfortunately, the surplus uptrend is driven by more by the tax amnesty program and the increase inprices of several commodities. (Read: Trade Balance Deficit Caused by Debt Settlements).
Meanwhile, foreign direct investment (FDI) and imports have not increased. This means that domestic investment has not improved.
Taking these conditions into account, David said that the 5.04 percent economic growth in the first half was not structural. The growth was supported by household consumption that coincided with Eid and Ramadan, as well as the shift in the harvest season. In addition, the financial market turmoil held investors back from investing in short-term and easy-exit portfolios.
"We are hoping for more from the investment sector, which only grew 5.6 percent in the second quarter. In the future, it should be seven percent, which would put the current account deficit at around 2.5-2.8 percent. This balance of payment surplus due to the moderate economy. "