Indonesia's trade balance may suffer next year

Indonesia's trade balance may suffer next year

JAKARTA (JP): Indonesia's trade balance next year is likely to
suffer at the hands of new foreign investors because of their
increased import activity, an investment bank predicts.

JP Morgan said in the latest issue of its Emerging Markets
Data Watch that this year's decline of Indonesia's trade surplus
was more severe than in the 1990-1992 cycle, which was mainly
caused by a surge in capital goods imports.

In the current cycle capital goods have contributed little to
the surge in imports, though this could change given the huge
buildup of foreign investment approvals.

"In turns, the trade balance is likely to deteriorate
further," Morgan said.

State Minister of Investment Sanyoto Sastrowardoyo said last
month that foreign investment approvals rose to $38.5 billion in
the period between Jan. 1 and Nov. 15.

Foreign investment approvals in the country might hit $40
billion this year, nearly doubling the 1994 figure of $23.7
billion, Sanyoto added.

Morgan said Indonesia's current trade balance is similar to
the situation in 1986, when the government tried to boost lagging
competitiveness with a 45 percent devaluation of the rupiah
against the U.S. dollar.

Today the main factor behind the deteriorating trade balance
is excessive import demand.

According to Morgan's data, September's trade surplus stood at
US$166 million, higher than the previous month's surplus of $149
million but much smaller than the surplus of $738.3 million
recorded a year earlier.

Slowdown

Official data show that export growth has slowed during the
second semester of this year, while import growth is soaring.

According to the Central Bureau of Statistics, the country's
exports grew only by 10 percent to US$3.95 billion in August from
$3.59 billion in the same month of last year, while imports shot
up by 38 percent to $3.8 billion from $2.75 billion.

Export growth for July stood at 7.4 percent, while import
growth was recorded at 31 percent.

The worsening trade balance is partly related to the
activities which are also causing the economy to overheat.

The government has been tightening its monetary policies to
slow down economic activities and engineer trade corrections.
Last week, Bank Indonesia, the central bank, issued a policy
requiring commercial banks to raise their minimum reserves to
three percent of their assets by February from two percent at
present to slow down credit growth.

Despite the decision to raise the reserve requirement,
monetary and fiscal policy actions to counter overheating have
been modest to date, Morgan said.

"More will have to be done," Morgan suggested.

The correction will imply a slowdown in Indonesia's economic
activities, and Morgan predicts that the economic growth rate
will decline from 7.7 percent this year, though not below six
percent.

In fact, overheating pressures have produced the same trade
balance fears in Malaysia and Thailand, JP Morgan said.

However, trade correction in Indonesia is likely to take
longer than in Thailand or Malaysia judging by past experience,
Morgan said. (rid)