Tue, 19 Aug 2003

Balance of payment to go into negative after exit from IMF

Riyadi Suparno, The Jakarta Post, Jakarta

After staying positive for years, Indonesia's balance of payment will stray into negative territory next year, partly because of higher public money outflows as a result of Indonesia's decision to exit the International Monetary Fund (IMF) program.

According to the government's supplementary report for the 2004 budget, the country's balance of payment -- the difference between the amount of money going out and into a country -- is projected to slump to minus US$1.16 billion next year, from positive $2.46 billion this year and a staggering $5.76 billion in 2002.

This negative balance of payment will eventually eat up the country's foreign exchange (forex) reserves. Consequently, forex reserves are expected to drop to $33.5 billion next year, from $35.58 billion this year and $32 billion in 2002.

The worsening situation in the balance of payment has ensued mostly from the deficit in both public and private capital flows, as well as from the decline in the country's current account.

Public capital flows are projected to reach minus $1.87 billion next year, from positive $277 million this year and minus $208 in 2002.

Next year, foreign loans to the government is expected to reach $3.47 billion, up from $2.5 billion this year. However, the new loans would not help the government's budget much, as the government is required to pay out $5.35 billion to foreign lenders next year, a jump from $2.25 billion this year.

This increasing payment from the government to foreign lenders will result from the loss of the Paris Club's rescheduling facility, following the government's decision to end the IMF program at the end of this year.

This year, Indonesia has received a debt rescheduling facility from the Paris Club totaling $3 billion.

Meanwhile, private capital flows are also expected to worsen next year to minus $3.46 billion from minus $2.9 billion this year and minus $1.48 billion last year.

Private capital flows include foreign direct investment (FDI), which is expected to remain negative next year, portfolio investment and others, including loans from foreign lenders to local private entities and corporate debt payment to foreign lenders.

FDI flows are also likely to get worse next year, projected at minus $3.69 billion -- which means that more investment money would flow out of the country, including from dividend payments -- from minus $2.9 billion this year and minus $785 million in 2002.

The projection parallels the prediction by private analysts, who see no meaningful foreign investment in 2004, due to a heightening political climate as a result of the general elections.

Meanwhile, portfolio investment flows are expected to remain positive next year at $1.48 billion, from $1.43 billion this year and $1.22 billion last year.

Portfolio investment into the country will continue to center on government bonds, treasury bills and Bank Indonesia promissory notes, which offer better returns compared to other debt instruments in other countries.

Also contributing to the worsening balance of payment is the decreasing current account -- the difference between the amount of money resulting from the country's international trade in goods and its trade in services.

The current account will still record a surplus next year, but is expected to be much lower at $4.18 billion, down from $5.1 billion this year and $7.45 billion last year.

The decrease in the current account surplus is a result of the decreasing trade surplus at $20.70 billion next year, from $21.98 billion this year and $23.12 billion last year.

The expected slump in exports next year will be responsible for a decrease in trade surplus. Total exports next year are expected to slide to $61.07 billion from $61.39 billion this year, while imports are projected to increase slightly to $40.34 billion from $39.4 billion.

Meanwhile, deficit in trade in services would be slightly lower next year at $16.55 billion, from $16.88 billion this year and $15.67 billion last year.

Indonesia's balance of payment, 2002-2004 (in million US$) ------------------------------------------------------

2002 2003 2004

(estimate) (projection)

A. Current account 7,450 5,102 4,179

1. Trade in goods 23,121 21,980 20,727

a. Exports, fob 58,773 61,395 61,066

b. Imports, fob -35,652 -39,415 -40,339

2. Trade in services -15,671 -16,878 -16,548

B. Capital flows -1,685 -2,642 -5,337

1. Public sector -208 277 -1.875

a. Loans and grants 2.349 2.526 3.471

b. Principal and interest -2.557 -2.249 -5.346

2. Private sector -1.477 -2.919 -3.462

a. FDI -785 -1,048 -3,689

b. Portfolio investment -1,222 -1,430 -1,485

c. Others -1,914 -3,301 -1,258

C. Balance of payment (A+B) 5,765 2,460 -1,158

--------------------------------------------- Source: Bank Indonesia