Indonesia’s August trade balance swings to deficit

JAKARTA, Indonesia – Indonesia’s trade balance unexpectedly swung back to a deficit in August, official data showed Wednesday, October 1, a setback for Southeast Asia’s top economy as it struggles to recover after a turbulent period.

However, while the statistics agency attributed the $318.1 million deficit to a surge in imports, it added that most were capital goods, such as machinery for manufacturing, as opposed to consumer goods.

The government is trying to ramp up manufacturing and wean itself off imports of consumer products as it tries to get people, especially the emerging middle class, to buy Indonesian rather than foreign goods.

The market had expected the trade balance to remain in surplus for a second consecutive month. (READ: Indonesia trade picture brightens after Ramadan slump)

“This will put pressure on Indonesia’s current account deficit, which had been improving on the back of better trade numbers because imports were falling,” Kenny Soejatman, an economist from Manulife Asset Management Indonesia, told AFP.

However, Standard Chartered Bank said the increase in machinery imports showed businesses were confident after July’s peaceful presidential election.

Trade is a key part of the current account, which hit a near-record deficit of $9.1 billion, or 4.27% of GDP, in the second quarter this year.

The widening current account deficit was a key concern of foreign investors last year when Indonesia was hard hit by emerging market turmoil as the US Federal Reserve said it was preparing to wind down its stimulus.

The rupiah lost more than 20% of its value during the turmoil and stocks also plummeted.

Also Wednesday, HSBC said its purchasing managers index of manufacturing activity rebounded in September to 50.7 from a 12-month low of 49.5 in August. A reading above 50 indicates expansion, while below signals contraction.

September inflation remained tame at 4.53% on-year, up slightly from 3.99% the previous month, and gives the incoming government – which takes over this month – room to reduce fuel subsidies, a major drain on the state budget. – with a report from Dow Jones Newswires/Rappler.com