Central bank warns of trade deficit, forex shortage
Urip Hudiono, The Jakarta Post, Jakarta
Bank Indonesia has warned that an imbalance in Indonesia's oil trade account and a possible shortage in foreign exchange would hurt the country's monetary position, and therefore affect this year's economic growth projection of 5.5 percent.
"These two main issues should be promptly addressed, otherwise they will erode the country's monetary resilience, as well as the whole economy," BI Governor Burhanuddin Abdullah said on Tuesday.
Explaining the central bank's board of governors' first quarter assessment of the country's economy, Burhanuddin said BI had been observing that the country's trade account -- particularly in the oil sector -- had been experiencing a deficit of US$2 billion per year.
"This is an alarming figure and has to be compensated from other sectors," he said. "Based on our projection, we also see that the country may experience a shortage in foreign exchange of between $12 billion and $15 billion this year."
In its annual economic report, BI recorded that Indonesia's oil trade account had switched to a $2.56 billion deficit last year from a $38 million surplus in 2003. The country's gas and non-oil-and-gas trade account, however, still experienced a surplus of $9.05 billion and $14.74 billion, respectively.
BI recently reported that Indonesia's foreign currency reserve reached $36.07 billion in the first week of April, up by $40.9 million from the previous week.
A shortage in foreign exchange could affect the rupiah's value and put more pressure on Indonesia's inflation rate, which the Central Statistics Agency reported as reaching an on-year 8.81 percent high in March.
BI recorded the rupiah as having been trading at an average of Rp 9,279 to the dollar during this year's first quarter.
Indonesia's economy, meanwhile, grew by between 5 percent and 5.5 percent during the first quarter, and could grow by up to 6 percent by the end of the year.
Burhanuddin said the cause of the two problems lay in the fact that the country's export activities remain slow, as compared to domestic consumption, which is still the country's main economic growth engine.
"Although exports have been improving, growth has yet to reach an adequate enough pace," he said. "We must therefore still increase our exports."
Increasing exports alone, however, would not be enough, Burhanuddin said, as BI had also observed that much of the export revenue was not actually coming into the country.
"It is a common practice to deposit the revenue overseas, which can be clearly observed through the existing gap between the export reports and the actual money coming into the country," he said.
To resolve this, Burhanuddin says that the government, the country's business community and BI should sit together and find appropriate solutions to repatriate these funds.
Meanwhile, to reduce possible inflationary pressure due to the two issues, BI will continue its tight monetary policy in the next quarter, including adjusting its benchmark SBI interest rate.
BI deputy governor Hartadi A. Sarwono, however, denied that the central bank had plans to raise the SBI interest rate to 8 percent by the end of the year.
"There is no such target. We will monitor the country's monetary situation every month, and act accordingly," he said.