(Left to Right) Vice President Special Team Sofyan Wanandi, Coordinating Minister of Economy Darmin Nasution, Minister of Finance Sri Mulyani and Minister of Communication and Informatics Rudiantara during meeting (10 Jan. 2018)

JAKARTA (TheInsiderStories) – Coordinating Minister for Economic Affairs Darmin Nasution optimist Indonesia’s trade balance will improved by the end of 2018 followed the new government policy such as blended biodiesel (B20) use for all diesel-engined vehicles and other policies.

Based on Statistic Indonesia’s data the country’s trade balance surplus US$1.74 billion in June after experienced deficit in April and May. The trade deficit in May reached $1.63 billion, but higher than May 2017 which surplus $470 million. Meanwhile, in the current year, the trade balance of January-May 2018 deficit of $2.83 billion.

The Statistics Indonesia also reported the high trade deficit triggered by the significant increase in import by 12.26 percent to $11.26 billion in June 2018 compared to the same period in 2017 (YoY) $9.991.6 billion. Meanwhile, the export only grew 11.47 per cent to $12.30 billion from  a year ago.

Trade deficit has put a more pressure to Rupiah as it worsens the current account and Indonesia’s balance of payments. The country’s balance of payments recorded $3.85 billion in deficit in the first quarter (1Q) of this year, much worse than $4.51 billion in the 1Q last year.The trade deficit also pushed the Jakarta Composite Index lower.

According to Nasution, the United State’s economy medicine is quantitative easing (QE) and it only works to print as much money and buy assets abroad but doesn’t keep the money that has been reprinted. To bring the money back to U.S, he explained, the Federal Reserves should raise its key interest rate, lowered the taxes, and raise the crude oil price.

“Along with that our CAD is deficit since the new order is now in the position of 2.5-2.6 percent. This situation because our balance sheet deficit and we must overcome so that the pressure is not too big,” he added.

Nasution ensured, to keep the CAD in the good position, government will work hard to boost exports and reduce imports. He stated: “We choose some policies that become anchors in the form of the use of B20 for all diesel, tourism and others. We will not deficit (CAD) again later this year.”

He also urged the businessmen to replace is foreign exchange (FX) funds to Rupiah to strengthened the local currency. Currently, 80 percent has put in Indonesia but only 15 percent convert to Rupiah and the rest is made in the form of savings, demand deposits and deposits.

“If the bank entered in foreign currency let alone the gyro the bank did not dare to lend. If taken there are rules in monetary name net open position you can only take some. Then if it is sold it must be bought by BI (Bank Indonesia,” said Nasution.

He elaborated, there are 3 policies prepared by government to face the latest global economic development. First, in 2017 the government publishes the Presidential Regulation of Online Single Submissions (OSS) to attract more investment to the country

Second, fiscal incentives such as tax holiday, decreasing revenues tax for Small and Medium Enterprises and B20 scheme. With all the policies he believed, Indonesia could maintain is CAD in the good level and not hurt the economy.

According to World Bank, the Indonesian economy continued to expand at a robust pace, lifted by strong investment. the donor agency said, higher global commodity prices spurred stronger investment, especially in machine, equipment, and vehicles.

As a result, World Bank said, gross capital fixed formation grew the fastest in more than five years. Higher growth in machinery investment also led to a further pickup in imports, which grew more than twice the pace of exports, and acted as a drag on growth.

The CAD narrowed in 1Q, as the services trade deficit shrank sharply. The current account deficit narrowed to 2.1 percent of GDP in 1Q, from 2.3 percent of GDP in 4Q of last year, partly on stronger foreign tourist arrivals.

Indonesia’s economic outlook continues to be positive, although more measured. As global economic growth is projected to slow and trade flows moderate from recent highs, Indonesia’s GDP growth is projected to still rise with stronger domestic demand from 5.1 percent in 2017 to 5.2 percent in 2018.

Risks to the outlook are heavily tilted to the downside amid the tightening monetary conditions and bouts of financial volatility centered around other more vulnerable emerging economies.

Email: linda.silaen@theinsiderstories.com