INDONESIA’S CURRENT
ACCOUNT CHALLENGE
Part 2 – Is there a current account problem?
Petar Vujanovic
Head of Indonesia Desk
OECD, Economic Department
Current Account
2
Current account in OECD and
selected emerging economies
A big deterioration in Indonesia’s current account (% of GDP)
3
Current account in selected
emerging economies
Rapid deterioration in current account began in mid-2011
4
Exchange rate
Depreciation of over 35% since beginning of 2012.
5
Current account components (USD)
Higher oil deficit and lower non-oil & gas goods surplus
6
Current account components (USD)
Goods imports stalled and big fall in goods exports (USD)
since beginning of 2012.
7
Trade
8
Oil and gas – USD and Rupiah
Denomination of trade (USD or rupiah) makes a difference.
9
Oil – net exports and price
Oil price explains a big part of the growing oil deficit
10
Gas – net exports and price
Gas price explains little of the (relatively modest) decline in
gas exports (large trade surplus)
11
Trade – Non oil and gas goods
exports
Both manufactures and mineral commodity exports have
declined
12
Trade – Manufactured exports
Manufactured exports are quite diversified
13
Trade – Exports - Manufactures
Percent reduction in
value from Q2 2011 peak
(% share)
Palm oils
Base metal
products
Processed rubber
products
-40%
(18%)
-46%
(10%)
-43%
(12%)
14
Palm oil prices
Palm oil prices have fallen over 30% since Q1 2011
15
Trade – Exports – Mining and other
~30% of all
goods exports
Percent reduction in
value from ~Q4 2011
peak (% share)
Coal
-29%
(39%)
Crude oil
-10%
(24%)
Natural gas
-28%
(26%)
16
Trade – metal prices (IMF)
Metal prices have fallen over 30% since Q1 2011
17
Trade – thermal coal prices (IMF)
Coal prices have fallen by around 30% since Q1 2011
18
Terms of trade
…. In short – Indonesia has suffered a large decline in its terms of
trade – and accelerated since beginning of 2011. Similar to other
commodity-based economies, like Chile and Australia.
19
Trade – Goods and Service Imports
(USD and local currency)
Value of imports in local currency has been driven by depreciation.
Volumes have been flat in recent quarters.
20
Trade – Goods and Service Imports
(USD)
Raw materials are the largest component
21
Trade – Raw material imports (USD)
Processed industrial supplies are the largest component
22
Trade – Monthly trade balance
The turn around in the trade balance continued in November.
23
Capital and Financial Account
24
National savings and investment
Gross national savings and investment are now close to being equal
25
Capital account components
Portfolio flows have been volatile; reserves accumulation has been
important.
26
Reserves assets and the exchange rate
Policy of rapid reserve accumulation fro 2008 while the rupiah strengthened
helped to hold down the current account deficit.
27
Conclusion
• There has been a big deterioration in the current account since the end of
2011.
• This has contributed, at least in part, to a large depreciation in the Rupiah.
• Decline in goods balance (non-oil and gas, and oil).
• Commodity prices account for a large part of this – including crude oil, palm
oil, coal, and many metals – end of the “super-cycle”.
• A terms of trade shock – like other commodity exporters.
• Imports of processed industrial supplies are a large component but flat
(USD and volume) growth.
• Savings excess over investment has disappeared.
• Reserve asset transactions important in explaining capital account.
• FDI flows have increased. Portfolio flows have been volatile.
28