The World Bank has revised its projection of Indonesia’s current-account
deficit (CAD) as it estimates that the country’s mineral ore export ban
will squeeze exports this year.
In its latest quarterly report,
launched on Tuesday, the World Bank set Indonesia’s CAD target at 2.9
percent of gross domestic product (GDP), from 2.6 percent, the previous
estimate made in December.
With the new projection, this year’s
total deficit is expected to stand at US$24.4 billion, down from the
$28.5 billion that Indonesia posted in 2013.
According to World
Bank chief economist Jim Brumby, part of that deficit would be due to
the mineral ore exports ban, which took effect in January.
“We
estimate that there will be a $5.3 billion trade deficit in 2014. For
the next three years, until 2017, the total deficit in the trade balance
caused by the ban will amount to $12.5 billion,” he said.
The
Indonesian government has previously said that the ban would help
Indonesia’s GDP and trade balance. It argues that by urging industry
players to process ores domestically, the country will see an increase
in value-added mineral exports, which will later bring in higher
revenue.
However, following the ban’s implementation, Indonesia
saw its exports fall to $14.48 billion in January, down 14.6 percent
from the previous month. Year-on-year, the export figure declined 5.8
percent.
Data from the Central Statistics Agency (BPS) shows that
the decline was driven by lower exports in the non-oil and gas segment,
especially in ores. Ore exports recorded the steepest decline, tumbling
70.1 percent month-on-month to $291.8 million.
The fall in
exports eventually led to Indonesia’s trade balance swinging back into
the red, with a $430.6 billion deficit in January, overturning the $1.5
billion surplus only a month before.
Despite revising the CAD
estimate, the World Bank upheld its projection of Indonesia’s GDP growth
target at 5.3 percent for 2014.
Several remaining domestic and external factors would affect the growth, according to Brumby.
“Domestically,
the upcoming elections will hopefully lead to a boost in consumption,
even though investment will still be weak,” Brumby said.
“Externally,
we can see that the global risk appetite is stronger than expected.
That will boost portfolio inflows to emerging markets,
including Indonesia,” he added.
Meanwhile,
Bank Danamon chief economist Anton Gunawan also predicted that this
year’s CAD would stay at around 2.9 percent of GDP. However, according
to Anton, the oil and gas segment will play a bigger role than the ore
export ban in relation to the trade balance and CAD.
“The
pressing concern is the fuel subsidy because it has put a big burden on
our budget. Will the new administration have the guts to increase the
price of subsidized fuel and allocate the funds where they are needed?”
he asked, after attending the report’s launch.
Separately, Bank
Mandiri chief economist Destry Damayanti said that the ore export ban
would affect the country negatively in the short term with $6.5 billion
in potential losses this year if the government insisted on forbidding
all kinds of mineral ore exports.
“But the ban will be beneficial
in the long run because we will see products wtih greater value. What
is important is that the government provides the necessary
infrastructure, so that private firms will be willing to invest in
smelters,” she said, adding that the bank set the CAD estimate at 2.7
percent.
Source : Jakartapost
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