Indonesia’s External Resilience Remains Strong Amid Global Risks: A Surplus in the Balance of Payments

Jakarta, INTI - Indonesia’s external resilience continues to remain stable amid various global risks, one of which is reflected in the achievement of a surplus in the country’s international economic transactions. According to the Bank Indonesia report, Indonesia’s Balance of Payments (BOP) in Q3-2024 recorded a surplus of USD 5.9 billion, a significant improvement from the previous quarter, where a deficit of USD 0.6 billion was recorded in Q2-2024.

Decrease in Current Account Deficit

This surplus was driven by improvements in several indicators, one of which was the reduction in the current account deficit to USD 2.2 billion (0.6% of GDP), a better outcome compared to the deficit of USD 3.2 billion (0.9% of GDP) in Q2-2024. This positive development was influenced by the improvement in the Services Account, which saw a decrease in deficit from USD 5.1 billion to USD 4.2 billion, primarily due to increased revenue from travel services, spurred by the rise in foreign visitors to Indonesia, thanks to the hosting of international-scale events and the summer holiday period.

In addition to the Services Account improvement, the decrease in the current account deficit was also supported by a reduction in the Primary Income Account deficit to USD 8.9 billion, lower than the previous period’s USD 9.6 billion. This was due to lower payment of returns on direct and portfolio investments in line with business cycle patterns. Other positive performance indicators included the increase in the Secondary Income Account surplus to USD 1.6 billion, higher than the previous period’s USD 1.5 billion, driven by an increase in government grants and remittances from Indonesian Migrant Workers (PMI).

Increase in Capital and Financial Account Surplus

Furthermore, the surplus in the Balance of Payments was also supported by the increase in the Capital and Financial Account surplus to USD 6.6 billion (1.8% of GDP), up from USD 3.0 billion (0.9% of GDP) in Q2-2024. This positive development was driven by an increase in the Direct Investment surplus to USD 5.2 billion, supported by high foreign equity capital inflows, particularly in the manufacturing, mining, and retail sectors. In addition, the increase in the Portfolio Investment surplus to USD 9.6 billion, stemming from purchases of long-term instruments like Rupiah-denominated Government Bonds (SUN) and Global Bonds, as well as short-term instruments such as Bank Indonesia’s Rupiah Securities (SRBI), also contributed to the surplus in the Capital and Financial Account.

Increase in Foreign Exchange Reserves

The surplus in the Balance of Payments also had a positive impact on Indonesia’s foreign exchange reserves position. Foreign exchange reserves rose to USD 149.9 billion at the end of September 2024, which is equivalent to 6.4 months of imports and government foreign debt payments, and well above the international adequacy standard of around 3 months of imports.

Government’s Strategic Policies

As part of efforts to maintain external resilience amid global pressures, such as the strengthening of the US dollar index which affects the volatility of Indonesia’s financial markets, the government has also implemented strategic policies to reduce exchange rate vulnerabilities by promoting the use of local currency in bilateral transactions. The implementation of the Local Currency Transaction (LCT), which is an extension of the Local Currency Settlement (LCS), plays a crucial role in facilitating trade and investment between countries by reducing reliance on certain foreign currencies. This policy is expected to support the deepening of financial markets and stabilize the exchange rate.

“To optimize the use of LCT, the government, together with Bank Indonesia, has formed a National LCT Task Force, aimed at increasing the use of LCT to 10% in 2024 and 2025,” said Airlangga Hartarto, the Coordinating Minister for Economic Affairs. This initiative is also reinforced through socialization and incentives for business actors, exporters, importers, and state-owned enterprises (SOEs) to encourage active participation in economic stabilization through this policy. With various strategies already in place, the government remains committed to safeguarding national economic resilience amid global economic dynamics.

In addition, the government continues to foster economic cooperation in various forums as part of efforts to increase access to Indonesia’s export products and attract foreign investment into the country, thereby strengthening external resilience and maintaining the surplus in the balance of payments. Indonesia’s partnership with the Indo-Pacific Economic Framework (IPEF) has resulted in concrete steps to expand markets through resilient global supply chains, facilitate green economies, and ease investment. The ongoing efforts to accede to the OECD also aim to push for reforms in line with the standards of developed nations, which are expected to enhance investment attractiveness and strengthen Indonesia’s global standing.

Looking ahead, Bank Indonesia expects the BOP for 2024 to continue growing positively, with the current account deficit expected to remain low, within the range of 0.1% to 0.9% of GDP. Considering these achievements and positive projections, the government will continue to strive to maintain the progress of the BOP amid global economic dynamics by strengthening policies and coordinating efforts among relevant stakeholders.