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August 14, 2008

Indonesia sees C/A surplus slightly down in Q2
Indonesia saw its current account surplus slightly decline to $2.6 billion in the second quarter, due to higher non oil-and gas imports, reported Reuters on Wednesday.

Reuters quoted a report of Indonesia’s central bank as saying that the surplus in the current account was expected to have fallen around 2.5 percent of GDP in the quater, from $2.8 billion in the first quarter.

Despite the high import growth in non oil-and-gas, up around 40 percent in June over a year ago, Indonesia still posted only a slight fall in the current account surplus because of steady exports of commodities such as palm oil, cocoa and rubber.

The rupiah was up around 2.5 percent per dollar this year, while some other Asian currencies fell. The rupiah benefits from bigger inflows of foreign currencies as a result of higher prices of commodities in the global market.

Before the current account data release, foreign exchange strategist Daniel Hui of HSBC warned in research report dated August 11 that Indonesia may soon report its first current account deficit since 2005 due in large part to high non oil-and-gas imports.

Hui said that Indonesia’s central bank may be too slow in its monetary tightening efforts in the face of a likely sharply deteriorating current account, which could raise the risks of higher inflation and a weaker rupiah in the coming months.

The central bank also said the country’s capital account -- which tracks the flow of funds for investments and loans into and out of Indonesia -- improved in the second quarter and was better than its earlier prediction as investors sought the country’s high yielding assets such as bonds.

It estimated Indonesia to have posted a capital account deficit of $49 million in the second quarter.

The central bank had earlier forecast that the capital account deficit would hit $1.1 billion in the first quarter, but did not give an update in its latest report.

Indonesia posted mostly capital account deficits after the Asian economic crisis a decade ago as investors took their money out amid political upheaval in the world’s fourth-most populous country following the fall of long-term autocrat Suharto in 1998.

Political stability, however, has largely improved in recent years, prompting investors to put the country back on the radar screen, as reflected by improving capital account.

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