BI: Current Account Deficit Passes Psychological Level

Bandung, W Java - Indonesia's current account deficit which reached US$6.9 billion or 3.1 percent of the country's gross domestic product (GDP) until the second quarter of 2012 has passed the psychological level, a central bank official said. Although the current account deficit has not been on the threshold of crisis it might have an impact on the real sector and then the banking sector unless efforts were made to keep watch for it, director of payments balance group of the statistics and monetary department at Bank Indonesia (BI) Doddy Zulverdi said here on Sunday. He said the deficit had lasted since the fourth quarter of 2011 due to a decline in the volume and prices of the country's export commodities while its imports of raw materials and capital goods continued to increase. The deficit became increasingly larger in the first and second quarters of this year, he said. He said the deficit stood at US$2.2 billion in the fourth quarter of 2011 and increased to US$3.2 billion in the first quarter of 2012 and further moved up to US$6.9 billion in the second quarter of 2012. The deficit would be worsening if no policy was taken to reduce it because it might have an impact on the rising pressure on the exchange rate and foreign exchange reserves, he said. "Even if there may not be a crisis in two years' time we must anticipate it. Don't let it drag on or worsen," he said. Not only would the deficit raise pressure on the exchange rate but also disrupt the continuity of economic growth due to the high investment inflows, coupled with rising imports without export growth, he said. Yet he predicted that the current account deficit would decline to 2 percent of GDP and the country's balance of payment would again record a surplus in the second semester of 2012 due to positive export growth.(*)