Weakening growth of the world and regional economy, coupled with low of Indonesia’s international competitiveness, compounded with falling commodity prices, have all undermined Indonesian exports.
Figure 14 : Indonesia Trade Balance January 2011 – July 2013
Indonesia trade balance registered the largest record deficit so far
Source: BPS and CEIC (2013)
Indonesian trade balance deteriorated in July 2013. The trade balance recorded a deficit of USD 2.3 billion, which followed a deficit of USD 0.9 billion in June 2013. Cumulatively, from June to July, 2013, Indonesia has posted a trade balance deficit of USD 5.6 Billion.
The value of Indonesian exports in July 2013 showed an increase of 2.4% compared with the level in the previous month. The value of exports increased from USD 14.8 billion in June 2013 to USD 15.1 billion in July 2013. Nonetheless, compared with the same period in the previous year, the value of exports posted a 6.1% decrease. Meanwhile, with respect to exports, the value of Indonesian imports in July 2013, showed an increase of 11.4 % compared with the level in June 2013 and represents a 6.5% increase compared with the level in July 2012. The largest increase in imports (mtm) was registered by capital goods imports (13.2%), followed by raw materials (11%), and consumer goods imports (10.7%). The increase in the value of imports, has contributed to the rising trade deficit. In cumulative terms, the value of imports during January to July period 2013, registered a decrease of 0.86% percent, the same applies to the value of Indonesian exports, which also posted a decrease of 6.08% compared with the same period in 2012.
The surge in the value of imports over the value of exports in July 2013, made the trade deficit unavoidable. Indonesian trade deficit in July 2013 was the largest on record. The large trade deficit will drain international foreign reserves to such an extent that Indonesia faces the problem of low level of foreign exchange. This is attested by the decrease in Indonesian foreign exchange from USD 108.8 Billion in January 2013 to USD 92.997 billion in August 2013.
Figure 15: Indonesia Oil and Gas Export Import, January 2011 – July 2013
Trade deficit of oil and gas shows upward trend
Source: BPS and CEIC (2013)
The increase in prices of fuels which was effected some time back, has hardly had any significant impact on the value of Indonesian oil and gas imports. The value of oil and gas imports showed an increase from USD 3.5 billion in June 2013 to USD 4.1 billion in July 2013. The increase in the value of oil and gas imports, is attributable to 30.67% increase in the value of crude oil imports and an increase of 1.62% in oil products , at the same time, imports of gas decreased by 5.81%. Cumulatively, during January-July 2013, the value of oil and gas imports was USD 26.2 billion, which is a 8.3% increase compared with the level of oil and gas imports recorded during the same period in the previous year.
On the contrary, the value of oil and gas exports decreased. The value of Indonesian oil and gas imports, which initially was USD 2.8 billion in June2013, decreased to USD 2.3 billion in July 2013. The decrease is attributable to a 10.47% drop in crude oil exports, a 7.94% decrease in the value of oil and gas products, and a 25.3% drop in gas exports. Despite a decrease in oil and gas exports, the price of Indonesian crude oil exports on the international commodity prices rose from USD 99.97 per barrel in June 2013 to USD 103.12 per barrel in July 2013. In cumulative terms, the value of Indonesian oil and gas exports during the period between January and July 2013, was USD 18.6 billion, which represents a 19.7% decrease in the value of Indonesian oil and gas exports during the same period in the previous year.
Considering the state of oil and gas exports and imports , described above, the rising trade deficit recorded in July 2013, will even become even larger. The oil and gas trade deficit, which initially USD 0.7 billion in June 2013, registered an increase of USD 1.9 billion. This is a stark contrast with the same period in the previous year when Indonesia posted a balance of trade surplus of USD 0.2 Billion. To that end, Indonesian oil and gas trade deficit in July 2013, deteriorated .
Figure 16: Indonesia Non Oil and Gas Export Import, January 2011 – July 2013
The deficit in non oil and gas export import is getting even larger
Source: BPS and CEIC (2013)
The increase in exports in July 2013, is a result of improvement in the value of non oil and gas exports which increased from USD 11.9 billion in June 2013 to USD 12.8 billion in July 2013. Large increase in non oil and gas exports was registered by among others, cereal commodities and iron dust, which increased by USD 0.2 billion, meanwhile the largest decline was posted by fats and animal /vegetable oils that plummeted by USD 0.4 billion. China, United States, and Japan continue to be the major export destinations of non oil and gas exports with each contributing USD 1.7 billion, USD 1.5 billion, and USD 1.4 billion, respectively in July 2013. In cumulative terms, the value of non oil and gas exports during the period between January and July 2013, recorded decrease of 2.7% compared with the same period in the previous year.
On the other hand, during the period between June 2013 and July 2013, Indonesian non oil and gas imports increased from USD 12.1 billion to USD 13.3 billion. Imports which contributed much to the increase in the value of imports, among others include machinery and mechanical tools which posted an increase of 18.3%, plastics and plastic products, which recorded an increase of 28.2%, and iron and steel which increased by 14.9%. The three goods listed above contributed much to the increase in the value of imports as each soared by more than USD 0.1 Billion. By country of origin of imports, the increase in non oil and gas imports, is attributable to non oil and gas imports from China (17.56%), Japan (9.7%), and Singapore (15.9%). In cumulative terms, during the period between January and July, 2013, the value of Indonesian non oil and gas imports was USD 85.5 billion, which represents a decrease from USD 88.6 billion recorded during the same period in the previous year.
Considering the state of exports and imports described above, confirms the fact that the trade deficit in the non oil and gas sector is becoming larger over time. The non oil and gas deficit, which in June 2013 was USD 0.2 billion, surged to USD 0.5 billion in July 2013.
Figure 17: Current Account, 2009:Q1-2013:Q2
The current account deficit is growing larger.
Source: Bank Indonesia and CEIC (2013)
The same applies to the current account deficit in quarter II-2013. The current account deficit increased from USD 5.8 billion in quarter I-2013 to USD 9.8 billion in quarter II-2013. Compared with the performance in quarter II-2012, the current account in quarter II-2013 shows a deterioration. In quarter II-2012, current account deficit was USD 8.2 billion, which was lower than the deficit today.
The deterioration of the current account deficit during this period is largely attributable to poor performance of balance of trade in goods, which plummeted from a trade surplus in the previous quarter to a deficit. The balance of trade in goods which in quarter I-2013, posted a surplus of USD 1.6 billion, plunged into a deficit of USD 0.6 billion in quarter II-2013. The deterioration of the trade balance on non oil and gas, at a time when the balance of trade in oil and gas was still in deficit, contributed much to the worsening performance of the trade balance in goods. Besides, the decline in prices of Indonesian commodity exports is also a factor that equally contributed to the deterioration of the balance of trade in goods during this period.
Besides attributable to the deterioration in the performance of trade balance in goods, worsening deficit in services and income has also played an important part in the soaring current account deficit. Th deficit in services increased from USD 2.5 billion in quarter I-2013 to USD 3 billion in quarter II-2013. The increase in the deficit on services is a direct consequence of a rise in the cost of transportation services in line with an increase in the volume of imports of goods. Meanwhile, during the same period, income deficit shot up from USD 6 billion to USD 7.1 billion in quarter II-2013. The increase was as a result of an upsurge in payments on Indonesian investments in quarter II-2013.
Figure 18: Capital and Financial Account, 2009:Q1-2013:Q2
Capital and financial account, bounced back into surplus. This was because at a time when the performance of foreign direct investment and portfolio investment weakened, other investments contributed much to the improvement of capital and financial account.
Source: Bank Indonesia and CEIC (2013)
Capital and Financial account bounced back into a surplus of USD 8.2 billion in quarter II-2013, reversing a deficit of USD 0.3 billion posted in the previous quarter. If compared with the previous year, the performance of capital and financial account in quarter II-2013 showed marked improvement. In quarter II-2012, capital and financial accounts recorded a surplus of USD 5 billion, which is lower than the level posted in quarter II-2013.
Improvement in the performance of capital and financial account in quarter II-2013, was largely due to better performance of other investments which moved from a deficit of USD 7 billion in quarter I-2013 into a surplus of USD 2.3 billion in quarter II-2013. Improvement in the performance of other investments was as a result of withdrawal of private sector cash and savings in foreign banks of USD 4.6 billion in quarter II-2013 and recorded on the asset side. Meanwhile, other investments which constitutes liability , included records of the amount of foreign debt repayments by the monetary authority, the government, and private sector which was USD 0.03 billion, USD 1.7 billion, and USD 7 billion, respectively in quarter II-2013.
Contrary to other investments,the performance of direct investment and portfolio investment in quarter II-2013 shows a tendency to decrease. Direct investment decreased from USD 3.9 billion in quarter I-2013 to USD 3.3 billion in quarter II-2013. In the meantime, portfolio investment decreased from USD 2.8 billion to USD 2.6 billion in quarter II-2013.
With respect to the liability side of portfolio investment, the inflow of foreign funds to government debt securities was USD 3.1 billion, which represents an increase from USD 0.1 billion recorded in the previous quarter. The increase was propped up by the issuing of government bonds to the tune of USD 3 billion in quarter II-2013, out of which USD 2.7 billion was bought by foreign investors.
In the meantime, foreign investment in portfolio instruments issued by the private sector, decreased drastically from USD 2.7 billion in quarter I-2013 to USD 0.1 billion in quarter II-2013.
Figure 19: Balance of Payments 2009:Q1 – 2013:Q2
The Balance of Payments showed slight improvement
Source: Bank Indonesia and CEIC (2013)
The balance of payments registered slight improvement in quarter II-2013. This is reflected in the decrease in the deficit in the balance of payments from USD 6.6 billion in quarter I-2013 to USD 2.5 billion in quarter II-2013. Thus, despite the fact that the current account was still in deficit, improvement in the balance of payments was made possible thanks to enhanced performance of capital and financial accounts, especially from the perspective of other investments which posted rapid growth in the previous quarter.
The balance of payments position , which is still in deficit, has implication for the country’s foreign exchange reserves that also continues to decrease. In January 2013, Indonesia had USD 108.8 Billion of foreign exchange reserves, but has since plummeted to USD 93 billion in August 2013. Indonesian Debt Service Ratio, which hit the 41.4% mark in quarter II-2013, in an indication that interest and principal payments on debt is nearly reaching the value of export revenues. This, in no doubt, attests to the growing inability of Indonesia to make its debt servicing obligations.
If compared with the same quarter in the previous year, Indonesian balance of payments position today is somewhat better. In quarter II-2012, Indonesia’s balance of payments recorded a deficit of USD 2.8 billion out of which USD 8.2 Billion constituted a defict on the current account and a surplus of USD 5.1 billion on the capital and financial account.