Indonesia a Current-Account Deficit, How Must We Do to Solve it ?

BLOKBERITA -- The failure to boost tax revenue worsened the CAD, as the government kept issuing global bonds to support budget spending, adding to the problem amid slow exports.

Bank Indonesia (BI) reported a current-account deficit (CAD) of US$17.8 billion in 2015, lower than the 2014 level of $27.5 billion, a result of an overwhelming drop in imports amid low exports and lighter capital outflow over the course of the year. The 2015 CAD was equivalent to 2.1 percent of gross domestic product (GDP), compared with 3.1 percent CAD in 2014, the central bank said.

“It was due to a bigger decline in imports than in exports, as well as improved income and service balance. The drop in imports was caused by lower domestic demand in the sluggish economy,” said BI spokesperson Arbonas Hutabarat in a statement on Friday.

At the same time, he continued, the drop in exports was driven by weakened external demand caused by global slowdown and the continuing drop in global commodities prices. In the fourth quarter of 2015 alone, the CAD stood at $5.1 billion or 2.4 percent of gross domestic product (GDP), widening from the third quarter CAD of $4.2 billion or 1.9 percent of GDP.

CAD is a measure of a country's foreign trade in both goods and services. It is part of the balance of payments, which summarizes an economy's transactions with the rest of the world. Indonesia’s balance of payments slipped to a $1.1 billion deficit last year from a surplus of $15.2 billion in 2014, a result of declined surplus in Indonesian capital and financial transactions, Arbonas explained (Jakarta Post)

The Source of Problem

Throughout the year, Indonesia’s economy has been struggling with weak global demand for commodities, twin deficits and delayed infrastructure spending. Global uncertainties have made macroeconomic management more challenging and ultimately prompted substantial deregulation.

In the first half of 2015, thanks to global slowdon, Indonesia’s economy growth slowed down from 4.71 percent in the first quarter to 4.67 percent in the second. The third quarter saw growth improve a little bit, to 4.73 percent, but still down from the 4.92 percent rate compared to the same period last year.

All this happened while the country faced a twin deficit—a fiscal deficit and a current account deficit (CAD). Since the 1998 Asian financial crisis, Indonesia has been running fiscal deficits—where state spending outweighs state revenues—in a bid to fuel economic growth.

After the 2008 credit crisis, commodity prices were squeezed, which badly affected Indonesia as the main producer of coal and crude palm oil (CPO) and contributed heavily to the CAD. In 2015, Indonesia looks set to record a CAD of 1.9 percent and a fiscal deficit of the same magnitude—which however, might soar to 2.7 percent.

The failure to boost tax revenue worsened the CAD, as the government kept issuing global bonds to support budget spending, adding to the problem amid slow exports. If deficit spending were used to finance investments with returns that exceed the interest paid on the deficit, this would not be much of a concern. Unfortunately, this is not the case, with Indonesia allocating around Rp300 trillion (US$22 billion) for fuel subsidies and importing some 300 million barrels of oil and fuel (as of 2015).

How Must We Do To Solve It?

The government has made 2015 the year of planning and launching stimuli measures, a foundation needed for boosting economic growth through de-regulation and re-regulation. It has been too late for the stimuli packages to address the twin deficits in 2015. However, as part of an ongoing process, it is never too late to save the macro economy, unless Darmin and the team fail on the implementation.

The government's stimuli to boost the economy but added that the results of these policies had yet to be seen because the main problem is the slow implementation and the coordination among departments. To boost investment, we need simplified regulations, but it has yet to be achieved. Coordination between sectors to formulate appropriate policies is necessary to make this real," Institute Development of Economics and Finance (INDEF) Executive Director Enny Sri Hartati told TheJakartaPost.com.

The effectiveness of the series of policy packages, Enny continued, would be felt when significant investment, ultimately in the manufacturing sector, began to flourish despite sluggish commodity prices.

Economic restructuring need a some condition outside on economic condition only. There is a special condition to boost economic restructuring are the stability of internal security and political also firmly law enforcement. In the factor of the stability of security and political, investors seemed disappointed with political upheaval amid attempts to criminalize leaders of the Corruption Eradication Commission (KPK), as well as with slow budget spending and especially with the cut in subsidized fuel prices—a “setback” from the previous increase.

Besides that, we must make confession that national law enforcement is still weaken. Public must be disappointed with legislative ethics body decision on the case “father want stocks or papa minta saham”. Its fact was showed a clear position about the weakness our law enforcement and these condition makes investors unhappy to invest their capital in Indonesia.

Furthermore, labor mass rallies which happen on several province, districts and major in Indonesia also making the situation of economic Indonesia doesn’t have an attractive incentive to pull investor come to Indonesia. The effect of these situation is many of Indonesia labor might be fired or lost their job because without foreign investment its mean a job vacancy or recruiting labor just only a big dream. If its happen, our national security is in a danger because unemployed human resources are a burden problem also creating unstability environment.

Therefore, the alacrity of all of the government agencies such as customs and excise, the police especially detective and criminals unit and State Intelligence Agency, and last but not leat the Corruption Eradicating Commission (KPK) to find a solution from the source of problem and to bring economic criminals perpetrators to the court so that the program of Jokowi administration to boost economic progress and to minimilize a current-account deficit can be realized it. (Inrev./bass)