Balance of payments to go negative after exit from IMF
Balance of payments to go negative after exit from IMF
Riyadi Suparno
The Jakarta Post
Jakarta
After staying positive for years, Indonesia's balance of
payments 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 payments -- 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 payments 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 payments 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 payments 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 payments 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 payments 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 $15.67 billion last year.
Indonesia's balance of payments, 2002-2004
(in million US$)
------------------------------------------------------
2002 2003 2004
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 payments (A+B) 5,765 2,460 -1,158
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Source: Bank Indonesia