The current account recorded a deficit in the second quarter of 2023 as well as Indonesia’s balance of paymentsThe sluggish export and the large investment payments by foreign investors in Indonesia have resulted in a current account deficitForeign investors chose to flee from the Indonesian financial market, thereby creating a deficit in the financial transaction balance
Jakarta, CNBC Indonesia – President Joko Widodo’s (Jokowi) concern regarding the huge impact of the global slowdown and uncertainty is evident. The current account turned into a deficit due to weak exports. The flight of foreign investors has also pushed Indonesia’s balance of payments into the negative zone.
Bank Indonesia (BI) reported that Indonesia’s current account posted a deficit of US$1.9 billion or 0.5% of the Gross Domestic Product (GDP) in the second quarter of 2023. This deficit is the first since the second quarter of 2021
Exports and Primary Income are Undermining the Current Account
In the current account, the export-import balance still recorded a surplus of US$ 10.35 billion. However, the figure is much smaller than in the first quarter of 2023 which was recorded at US$ 14.7 billion.
The surplus in the export-import balance narrowed because exports of goods dropped significantly from US$ 67.32 billion in January-March 2023 to US$ 61.97 billion in April-June 2023.
This weakening of exports is clear evidence that the economic slowdown in trading partners has had a major impact on Indonesia’s trade.
As is well known, President Jokowi has repeatedly warned about the global economy which is predicted to remain dismal and could have a negative impact on Indonesia.
In its report, BI explained that the decline in the export-import balance was caused by a decline in global commodities and a slowdown in the world economy.
BI data shows Indonesia’s exports in the second quarter of 2023 (year on year/yoy) to the 10 main countries that fell. Major contractions were recorded by Malaysia, South Korea, India and China.
In addition to the slowdown in exports, the current account also experienced a deficit due to the large primary trade balance.
The primary trade balance deficit increased to US$ 9.15 billion in the second quarter of 2023, from US$ 8.61 billion in the first quarter of 2023.
The deficit increased due to increased dividend payments or returns on foreign investment in Indonesia.
Asing Kabur from RI, NPI also Nelangsa
Not only the current account, the balance of financial transactions also entered the negative zone because of the swift capital outflow. Foreigners chose to flee in line with the impact of increased global financial market uncertainty, as well as increased payments on global bonds and foreign loans maturing according to a quarterly pattern.
The financial transaction balance, which records direct and portfolio investment, posted a deficit of US$ 4.97 billion in April-June 2023, reversing its direction from a surplus of US$ 3.68 billion in January-March 2023.
Direct investment still recorded a surplus of US$ 3.31 billion in the second quarter of 2023, down from US$ 3.86 billion in the first quarter of 2023.
The large amount of direct investment shows that Indonesia is still an attractive destination for foreign investors in the real sector.
However, this is not the case with portfolio investment which records investment transactions in stocks and bonds. The portfolio investment balance recorded a deficit of US$ 2.59 billion in the second quarter of 2023, reversing its direction from a surplus of US$ 3.03 billion in the first quarter of 2023.
On the stock market, foreign investors are still registering net inflow US$ 0.6 billion in April-June this year, an increase from US$ 0.2 billion in January-March 2023.
If foreigners are still interested in the stock market, it is not the case in the bond market.
Foreign investors only register net outflow US$ 0.1 billion in government bonds or Government Securities (SBN). The outflow is more towards payment of maturing international SBN and in the sharia sector.
However, a massive sell-off occurred in corporate or private bonds. Foreign notes net outflow of US$ 2.3 billion in the second quarter of 2023, an increase from US$ 0.5 billion in the previous quarter.
Sales of corporate bonds mainly occur on long-term tenors. Increasing global uncertainty from the US and weakening China are driving foreigners to leave private bond markets.
BOP Turns Deficit, What’s the Impact?
The large deficit in the current account and portfolio investment resulted in overall BOP recording a deficit of US$ 7.37 billion in the second quarter of 2023. This deficit is the first since the third quarter of 2022.
The deficit in April-June 2023 is also inversely proportional to a surplus of US$ 6.52 billion in January-March 2023.
Materials Sekuritas economist Satria Sambijantoro said the BOP deficit was threatened to widen in the future due to the large volume of oil imports while coal and crude palm oil exports remained stagnant.
Satria also explained that the deficit in the balance of payments and the current account could put more pressure on the rupiah so that BI would again raise interest rates to protect the Garuda currency.
“This condition will give more risk to the rupiah. Your consensus is that the direction of BI’s future policy will actually increase interest rates, not cut,” said Satria, to CNBC Indonesia.
Jokowi’s Worries Proved
Previously, on several occasions, Jokowi reminded that global economic conditions were still dark. He also added that in the narrative of the Financial Notes Book and the 2024 State Revenue & Expenditure Budget Draft (RAPBN), it can be seen that the government is concerned about global economic conditions.
This fear became real after the BOP data experienced a deficit in the second quarter of 2023.
On several occasions, Jokowi also reminded that the global economic conditions were still dark. Jokowi said that to make this happen was not an easy matter because there were challenges from the global economic situation which was still dark, even though Indonesia was still experiencing growth.
“We know the global situation is not supportive, the world economic situation is also not supportive,” said Jokowi when opening the National Coordination Meeting for Government Internal Supervision at the BPKP Building, East Jakarta, June 14, 2023.
The global economic slowdown and uncertainty will be reflected in current account data and Indonesia’s balance of payments which Bank Indonesia will announce today.
The current account data will illustrate how far Indonesia’s exports have been affected by the global economic slowdown, while the BOP data will describe whether foreign investors have started to be interested in entering Indonesia amidst the intense global uncertainty.
CNBC INDONESIA RESEARCH
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2023-08-22 07:50:00
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