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)