Indonesian President Joko Widodo urged his economic ministers to create breakthrough programs in order to reduce the trade balance and current account deficit - Photo by President Office

JAKARTA (TheInsiderStories) – Indonesian President Joko Widodo urged his economic ministers to create breakthrough programs in order to reduce the trade balance and current account deficit (CAD). He delivered the order at the limited meeting at the president office, today (10/30).

“We must ensure that we can continue to boost the investment and at the same time reduce our dependence on imported goods, especially oil imports which have a very large impact on our trade balance deficit,” he told the ministers at the meeting.

On import issues, he asked the ministers to find a solution how to increase the domestic oil lifting by implementing new and renewable energy policies. Especially the mandatory of 20-percent biodiesel use (B20) to B30, then jumping to B50 and B100.

Moreover, to accelerate the goods move inter the island and stabilize the commodity price, president also expect the sea highway program be continued, said the leader. Lately, he note, the goods movement are controlled by certain private sector.

“Sea tolls are built to reduce logistics costs, transport costs so that prices fall. If controlled by one person we only provide facilities to him. This is what we don’t want,” Widodo asserted.

On the investment side, the head of state requested the Investment Coordinating Board should focus on specific projects. He gave an example bauxite and other import goods.

“Why don’t we make it half-finished or finished products together with a partner. Can be state own enterprises or private,” said president.

Beside oil, the largest import in the country is petrochemical. He was surprised, why Indonesia need a very big imports while the country have great potential to build the plant in this region. He suggested PT Tuban Petrochemicals Indonesia (TPPI) become state-owned company and the areas transform become industrial zones

“Exit from there can be goods that do not need to be imported including hydrogen can be used for B30, B50 or B100. Please, guarded this so we can catch up with the current account and trade deficits,” he asserted.

Related to tourism, he urged the minister concentrate on five top priority destinations namely Lake Toba in North Sumatera, Borobudur Temple in Central Java, Labuan Bajo in East Nusa Tenggara, Mandalika in Lombok and Manado in North Sulawesi.

“Concentrate there. We are targeting by the end of 2020 the infrastructure, airport roads, ports, tourism products and the calendar of events will be completed,” said Widodo.

Beside, he also proposed his cabinet must improve the climate and the ecosystem of investment and ease of doing business so that domestic and international trust is much better for the country.

In the second quarter (2Q) of 2019, the country’ CAD widened to US $8.4 billion or 3 percent of the gross domestic products (GDP). Its higher from the previous quarter which reached $7 billion or 2.6 percent of total GDP.

The deficit rising was influenced by the repatriation payment, dividends and foreign debt payments. In addition, it was also caused by slowing global economic growth and the declining of world commodity prices.

In the 2Q of 2019, non-oil and gas exports were recorded of $37.2 billion, lowered from previous quarter worth of $38.2 billion. The oil and gas trade balance deficit also rose to $3.2 billion from $2.2 billion in the previous quarter.

However, Indonesia’ balance of payments (BoP) still posted a surplus of $400 million. This was driven by a capital and financial account surplus in line with improving investor positive perceptions of the Indonesian economy.

The capital and financial account surplus in the second quarter of 2019 was recorded at $7.1 billion, supported by inflows of foreign direct investment and portfolio investment. Investment inflows were recorded at $7 billion, increased from previous quarter of $6.1 billion.

Portfolio investment was also still high at $4.5 billion. While, other investments recorded a deficit influenced by the increasing payment of government and private foreign loans that were due.

Looking ahead, the balance of payments is predicted to remain good so that it can continue to sustain the resilience of the external sector. This prospect is supported by the forecast of current account deficit 2019 which is expected to be lower than 2018, in the range of 2.5 until 3 percent of GDP.

The foreign capital inflows is also predicted to increase driven by positive investor perceptions of the maintained economic prospects of Indonesia. Bank Indonesia will strengthen policy synergies with the government and relevant authorities to improve external resilience.

Previously, Widodo has criticized his ministers due to the country’ widening CAD. He asked the ministers to look at the figures and question why the value of imports was so high.

He also has criticized his ministers for introducing new regulations that discourage investments and are not in line with his push for economic growth. He claimed 23 new regulations prevented easy investment. He said that the regulations were not included in the economic packages that had been issued by the government.

The president called on his ministers and other relevant officials to revise their “problematic” regulations to help the government attract more foreign investment. He said that such regulations may disrupt the economic growth target.

by Linda Silaen, Email: linda.silaen@theinsiderstories.com