petar vujanovic head of indonesia desk oecd, economic department part 2 – is there a current...
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Petar VujanovicHead of Indonesia DeskOECD, Economic Department
Part 2 – Is there a current account problem?
INDONESIA’S CURRENT ACCOUNT CHALLENGE
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Current Account
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Current account in OECD and selected emerging economies
A big deterioration in Indonesia’s current account (% of GDP)
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Current account in selected emerging economies
Rapid deterioration in current account began in mid-2011
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Exchange rate
Depreciation of over 35% since beginning of 2012.
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Current account components (USD)
Higher oil deficit and lower non-oil & gas goods surplus
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Current account components (USD)
Goods imports stalled and big fall in goods exports (USD) since beginning of 2012.
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Trade
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Oil and gas – USD and Rupiah
Denomination of trade (USD or rupiah) makes a difference.
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Oil – net exports and price
Oil price explains a big part of the growing oil deficit
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Gas – net exports and price
Gas price explains little of the (relatively modest) decline in gas exports (large trade surplus)
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Trade – Non oil and gas goods exports
Both manufactures and mineral commodity exports have declined
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Trade – Manufactured exports
Manufactured exports are quite diversified
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Trade – Exports - Manufactures
Palm oils Base metal products
Processed rubber products
-40% (18%)
-46%(10%)
-43%(12%)
Percent reduction in value from Q2 2011 peak
(% share)
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Palm oil prices
Palm oil prices have fallen over 30% since Q1 2011
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Trade – Exports – Mining and other
~30% of all goods exports
Coal Crude oil Natural gas
-29%(39%)
-10%(24%)
-28%(26%)
Percent reduction in value from ~Q4 2011
peak (% share)
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Trade – metal prices (IMF)
Metal prices have fallen over 30% since Q1 2011
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Trade – thermal coal prices (IMF)
Coal prices have fallen by around 30% since Q1 2011
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Terms of trade
…. In short – Indonesia has suffered a large decline in its terms of trade – and accelerated since beginning of 2011. Similar to other commodity-based economies, like Chile and Australia.
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Trade – Goods and Service Imports (USD and local currency)Value of imports in local currency has been driven by depreciation. Volumes have been flat in recent quarters.
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Trade – Goods and Service Imports (USD)
Raw materials are the largest component
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Trade – Raw material imports (USD)
Processed industrial supplies are the largest component
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Trade – Monthly trade balance
The turn around in the trade balance continued in November.
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Capital and Financial Account
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National savings and investment
Gross national savings and investment are now close to being equal
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Capital account components
Portfolio flows have been volatile; reserves accumulation has been important.
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Reserves assets and the exchange rate
Policy of rapid reserve accumulation fro 2008 while the rupiah strengthened helped to hold down the current account deficit.
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Conclusion
• There has been a big deterioration in the current account since the end of 2011.
• This has contributed, at least in part, to a large depreciation in the Rupiah.
• Decline in goods balance (non-oil and gas, and oil).
• Commodity prices account for a large part of this – including crude oil, palm oil, coal, and many metals – end of the “super-cycle”.
• A terms of trade shock – like other commodity exporters.
• Imports of processed industrial supplies are a large component but flat (USD and volume) growth.
• Savings excess over investment has disappeared.
• Reserve asset transactions important in explaining capital account.
• FDI flows have increased. Portfolio flows have been volatile.