The current account deficit, which last year widened to almost 3 percent of gross domestic product, remains a key vulnerability for the economy. It makes Indonesia reliant on foreign capital to fund its import needs, inflows that can be volatile as investor sentiment swings.
The deficit was one of the main reasons why Indonesia was targeted in an emerging market sell-off last year, triggered by rising U.S. interest rates and a stronger dollar. The rupiah slumped more than 5 percent against the dollar in 2018, dropping to its lowest levels since the Asian financial crisis two decades prior, as investors pulled out of the nation’s stocks and bonds.
The rupiah has bounced back in 2019, helped in part by the central bank’s swift action in raising interest rates by 175 basis points and the U.S. Federal Reserve’s shift away from policy tightening this year. The current account remains a risk though, and the government has imposed a number of measures to curb imports and spur exports to lower the deficit.
Data on Monday showing a second consecutive monthly trade surplus in March suggests the current account deficit probably narrowed in the first quarter. Economists surveyed by Bloomberg had predicted a $177 million trade deficit in the month.
Any politician from a democratic country, with a population of hundreds of millions, the majority of whom are entering the workforce is unlikely to succeed without at least posing as a pro-growth candidate. Both candidates in Indonesia are running on differing platforms aimed at promoting growth. In India, both the BJP and Congress Parties are showing support for small business and credit growth. In Nigeria’s last election last February, more than a few of those who have been holding office for decades lost their seats as the youthful population demand jobs and less graft. Those are all positive stories for the long-term trend of improving standards of governance in emerging markets.Click HERE to subscribe to Fuller Treacy Money Back to top