JAKARTA (TheInsiderStories) – Bank Indonesia reported the balance of payments (BoP) of the country had a large surplus US$9.2 billion in the second quarter (2Q) of 2020. In the previous quarter, the BoP experienced a deficit of $8.5 billion.
Based on the central bank statement on Tuesday (08/18), the improvement in the BoP was supported by a decrease in the current account deficit (CAD) and a large surplus in the capital and financial account. Inline with the development of the BoP surplus, the position of foreign exchange reserves at the end of June stood at $131.7 billion.
The position of foreign reserves is equivalent to 8.1 months of financing imports and government external debt and is above the international adequacy standard. The central bank announced, the CAD has declined further, supported by a surplus in the goods account and a reduction in the deficit in the primary income account.
The current account deficit was recorded at $2.9 billion or 1.2 percent of gross domestic products (GDP), lower than the deficit in the previous quarter of $3.7 billion or 1.4 percent of GDP. The decline in the CAD stemmed from a surplus in the goods trade balance due to lower imports due to weakening domestic demand.
In addition, the current account deficit narrowed due to reduced yield payments to foreign investors in line with the contraction in domestic economic growth in 2Q of 2020, which was reflected in the decline in corporate and investment performance.
While, the deficit in the services account increased slightly, driven by a deficit in travel services due to a significant drop in foreign tourist arrivals during the COVID-19. On the other hand, remittances from Indonesian Migrant Workers have eased. In line with the contraction in world economic growth, this has also prevented a further decline in the CAD.
The capital and financial account recorded a significant surplus in 2Q compared to the previous quarter and the easing of global financial market uncertainty. The capital and financial account surplus was recorded at $10.5 billion mainly from net inflows of portfolio investment and direct investment, after recording a deficit of $3.0 billion in the 1Q of 2020.
Portfolio investment inflows also have increased in the form of global bond issuance by the government and corporations and the purchase of state bond. The continued flow of foreign capital inflows was influenced by increased global liquidity, attractive yields on domestic financial instruments, and maintained investor confidence in Indonesia’s economic conditions.
Direct investment also contributed to the surplus on the capital and financial account, although it was relatively slower than the previous quarter, inline with the domestic economic contraction. Other investment transactions experienced a deficit influenced by the quarterly pattern of increasing repayments of maturing foreign loans.
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