RI's current account deficit lower than expected

JAKARTA (JP): Indonesia's current account deficit for the 1995/1996 fiscal year is now expected to be below the official projection of US$7.9 billion, reliable sources at Bank Indonesia said yesterday.

"Our actual current account deficit for last fiscal year is likely to be lower than the government's projection of $7.9 billion as a result of the government's measures to cool down the overheating economy," one of the sources said.

He said that the government had been quite successful in tackling a set of problems which were directly or indirectly deepening the country's current account deficit.

These measures included the establishment of a special team to review state projects with high import content, the contractive fiscal policy through the intensification of tax collections as well as the limitation of banking credit expansion.

All these measures were aimed to slow down the growth of domestic demand for goods and services because the deficit in the current accounts was basically driven by soaring domestic demand which could not be satisfied by domestic supply, the source said.

"Those measures turned out to be effective. The growth of a number of indicators, which was galloping at one stage, is now slowing down," he said.

He added that the measures would also probably help reduce the country's current account deficit for the current fiscal year, which the government has projected at $6.9 billion.

Many economists have expressed concern over the deepening current account deficit, which has broken the psychological barrier of 4 percent of gross domestic product (GDP).

"We agree that it would be much better if we could keep our current account deficit below 4 percent of GDP," another source at the central bank said. "However, the 4 percent limit is only a rule of thumb. Nobody has actually fixed this limit for the account deficit."

He noted that an account deficit of over four percent of the GDP is no problem as long as they are still manageable.

He pointed out that Malaysia's and Thailand's current account deficits have been up to 7 and 8 percent of their respective GDPs and that these high deficits had not created any significant problems for both countries.

He explained that Indonesia's large current account deficit last fiscal year was manageable, because it was balanced by a surplus of capital flows, which according to the government's projection will stand at $10.3 billion.

"The surplus of capital came mainly from private capital as we couldn't expect very much from government capital," the source said.

According to the government's projection, government capital flows will be shown to have suffered a deficit of $329 million last fiscal year, while private capital account will have enjoyed a surplus of $10.6 billion.

The source said yesterday that of the $10.6 billion capital surplus, $5.6 billion came from foreign direct investment, $1,7 billion from portfolio investment, $2.5 billion from share and bond issuance abroad and the rest from offshore borrowing.

Of the total offshore private borrowing secured last year, 70 percent had a maturity of over three years and an average annual interest rate of 1.5 percent above the London inter-bank offered Rate.

"So, we can see that the financing structure for our current account deficit is very healthy, because most of the funds used to balance them are long-term funds," he said. (rid)