Introduction:
The balance of payments in
Indonesia like in any other country in the world records all the transactions
between the country and the rest of the world over a period of time. The Bank
of Indonesia is issuing a report quarterly showing the evolution of the balance
of payments with details regarding the current and capital accounts and its
implications.
In the analysis of the balance of
payments in Indonesia, I will focus on the last 4 quarters (from Q3 2011 to Q2
2012) and analyze the effects of global and domestic Economic and financial
conditions related to the change in the balance of payments in details.
Click To enlarge the Graphs and tables
1)
Current
Acccount:
The current
account deficit in Indonesia has increased throughout the past 4 quarters,
indeed for the Q2/2012 it has reached about $6.9 billion (-3.1% of GDP), the
main cause of this increased deficit is the consequence of a deteriorating
non-oil and gas trade balance, with a significant stagnation in exports from
global uncertain perspective regarding the euro-crisis, and increasing imports.
1.1)
Goods
and Services Balance:
·
The
non oil and gas trade surplus have narrowed to $2.2 billion, from the reduction
in exports and increase in imports due to the unsolved Euro crisis and the slow
economic recovery in the United states which has affected Indonesia both
directly and indirectly as it has also reached Indonesia major trading partners
such as China or India, resulting in a
lower demand for Indonesian export products.
·
On
the other hand the oil exports have also contracted throughout the past
quarters and continue to have a negative contribution to the current account.
Moreover the price per barrel has decreased since the beginning of 2012 from
the weakening global outlook and decrease in manufacturing activities in China.The
gas exports have recorded the slowest growth for years for the same reasons as
the reduction in exports, but Indonesia’s gas production is expected to rise
for the next few years as several large-scale projects will begin operations.
·
The
service trade balance is still in deficit moving in a range from -$2 billion to
-$3.2 billion for the last 4 quarters, the deficit comes mainly from an
increasing deficit in transportation due to expenditures from the Indonesian
government on transportation facilities as the country is not considered as the
same level as other ASEAN countries in this area, while the surplus from travel
is diminishing especially from the seasonal trend.
1.2)
Income Account:
The
income account is still in deficit but it has reduced since the beginning of Q3
2011, from the steady expansion in foreign direct investment (FDI) , and the
strong performance of domestic companies in which foreign investors hold
shares.
1.3)
Transfer
Payments:
The current
transfers have been stable other the past few years but slightly decreasing, due
to a reduction in the deployment of Indonesian migrant workers abroad while the
number of expatriates in Indonesia has been increasing especially for highly
paid executives.
The amount of migrant workers is
on average 95,000 per quarter, with a majority of them heading to the
neighboring Malaysia while the rest stays in south-east asia mostly Hong Kong
or Singapore and middle eastern region.
1)
Capital and Financial
Accounts:
The
capital and financial accounts have been increasing over the last 4 quarters to
reach a $5.5 billion surplus in Q2 2012, this development reflects the
confidence from foreign investors in Indonesia economy’s outlook despite the
worsening economic conditions in the world, indeed we can see on the table that the increase in direct
investment accounts for a major part of the surplus.
2.1) Direct
Foreign Investment:
Foreign
direct investment have kept pouring into the Indonesian market throughout the
year, registering a $3.7 billion surplus for Q2 2012, the fact that FDI surplus
is lower this quarter is explained by the higher dividend payouts especially in
the oil and natural gas production sharing contractors with offshore parents
companies.
On
the other hand Indonesia’s direct investment abroad has recorded a
“disinvestment” due to the fact that a lot of holding companies have been
created in Indonesia to offshore subsidiaries.
2.2) Portfolio
Investment:
Inflows
of foreign portfolios started pouring into Indonesia since Q3 2011, this
increase is mainly due to the massive buying of foreign currency global bonds
issued by the government and private sector, despite the fact that
foreigner holdings of rupiah-denominated
securities, were concerned by the expectations of rupiah depreciation.
Moreover
the deteriorating global conditions have lead to a lack of interest from
foreign investors on the domestic stock market, recording a net sales of $875
million during the last quarters.
2.3)
Other Investment:
Other
investments were on deficit for the past
4 quarters, this increased deficit can be explained bu the higher private
sector deposit offshore explained by the rise in portfolio inflows.
Regarding
the asset side, other investment of private sector recorded a deficit for the
last 4 quarters, while the liabilities side shows a strong surplus
