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Increase in Foreign Exchange Reserves is Not Significant, The Key is in Decreasing CAD

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Jakarta – An increase in foreign exchange reserves of up to US $ 2 billion is considered not to have a significant economic impact. This is because positive domestic sentiment still faces global sentiment that triggers capital outflows.

Thus, the government is advised to truly commit to improve the current account deficit (CAD), because CAD is the cause of vulnerable economies.

Foreign exchange reserves rose US $ 2 billion to US $ 117.2 billion at the end of November 2018, compared with US $ 115.2 billion in the previous month.

Director of Research Center of Reform for Economics (Core) Indonesia, Piter Abdullah said the increase in foreign exchange reserves (cadev) was more due to the 2019 State Budget frontloading strategy where the government issued global SUN worth US $ 3 billion rather than purely from capital inflows.

According to him, the increase in cadev did add positive sentiment related to the condition of the domestic economy, as well as state revenues projected to exceed the target. However, he continued, Indonesia’s economy, especially the rupiah, was still very vulnerable to global issues.

“The increase in cadev will not have a lot of impact on the economy, cadev is increasing and revenue above the target does not mean anything when there is a global issue that attracts foreign capital. At that time the rupiah will decline,” he said when contacted by Bisnis on Friday (7 / 12/2018).

Piter assesses the source of the economic problem remains the CAD condition which shows the need for the dollar has still not been fulfilled.

“The government should be focused and truly committed to improving CAD. I see the government has no commitment and has not focused on improving CAD,” he explained.

The reason is, according to Piter, the policy in solving CAD problems is still very partial and there is no big strategy what steps will be taken to improve CAD. “What has been done so far is still very partial,” he added.

Thus, he suggested that the government must make a clear roadmap or roadmap in overcoming this CAD problem. That way, there is an identification of the causes of CAD, the solution and the details of the completion program like what.

The current account deficit in the III / 2018 quarter was recorded to increase to 3.37% against GDP or US $ 8.8 billion. This deficit widened from the previous quarter II / 2018 deficit of US $ 8.0 billion or 3.02% of GDP.

With these developments, Bank Indonesia recorded a cumulative current account balance deficit up to the third quarter of 2018 recorded at 2.86% of GDP.

The capital and financial transactions in the third quarter / 2018 report recorded a surplus of US $ 4.2 billion. Thus, the Indonesian Balance of Payments (NPI) in the III / 2018 quarter experienced a deficit of US $ 4.4 billion.

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