Warjiyo Believes Government Policy Able to Lowered Indonesia’s CAD

President Joko Widodo with BI's Governor Perry Warjiyo and CMEA Darmin Nasution at the National Coordination Meeting of Inflation Control in Jakarta (26/07) - Photo by President Office

JAKARTA (TheInsiderStoris) – Perry Warjiyo, the governor of Bank Indonesia (BI) believes the governments policy to optimize the use of blended biodiesel (B20) for vehicle, tourism and other policies could lowered the country` current account deficit (CAD).

He also assured, the new policies will able to save foreign exchange earnings and stabilize the Rupiah. Recently, President Joko Widodo has said to chasing U.S dollars through policy mix to keep a widening CAD.

Based on government data, of the 100 percent export revenues, only 85 percent are reentered the country and just 15 percent convert to Rupiah. Therefore, he said, the government racked the brain for foreign exchange (FX) can be taken home and converted to Rupiah maximally.

The combination of capital outflows and Indonesia’€™s high CAD has made the Rupiah Asia’€™s worst-performing currency in this year, having depreciated around 9 percent since early January.

BI sees that the CAD deficit to reached US$25 billion by the of this year or equivalent to 2.5 percent of the national gross domestic product (GDP). The figure represents a 44-percent rise compared to $17.3 billion in 2017, representing 1.7 percent of the GDP at that year.

Currently, the several programs that government have been made is adopted in a bid to save billions of U.S dollars in foreign exchange earnings. Industry Minister Airlangga Hartarto has said, the implementing of B20 for vehicle will save import costs around $2 billion.

He also said, the programs, which include encouraging the use of B20, will increasing the use of local components while the optimizing tourism services, are considered capable of reducing the balance of payment, adding that similar programs aimed at saving foreign exchange earnings include a review of the list of imported goods.

Meanwhile, Coordinating Minister for Economic Affairs Darmin Nasution optimist Indonesia’s trade balance will improved by the end of 2018 followed the new government policy.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.

Nasution assured, 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 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,” 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, 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