Indonesia trade deficit widens to record high

Indonesia’s trade deficit unexpectedly hit a record high in July, data showed on Monday, heaping pressure on policymakers to shore up the economy which is facing a grim future as investors flee.

The news came as a closely watched survey showed manufacturing activity in Southeast Asia’s biggest economy had sunk to a 15-month low in August.

Indonesia – like other global emerging markets – has been hammered by huge outflows of foreign cash over the past month on expectations the US Federal Reserve will begin to wind down its stimulus programme.

Official figures showed Indonesia’s trade deficit rose sharply to $2.31 billion in July from $847 million in June, compared with economists’ forecasts that it would dip to $353 million.

The deficit in July was “the highest in Indonesia’s history”, Suryamin, the head of the Central Statistics Agency who goes by one name, told reporters.

“Exports dropped because the price of commodities dropped,” Suryamin said. Demand for key commodities, such as coal and palm oil, have been hit by a slowdown in key market China.

It adds pressure to the country’s current account, which in the April-June quarter widened to a $9.8 billion deficit, the biggest shortfall since the Asian financial crisis of the late 1990s.

Adding to the government’s woes was news that an index compiled for HSBC showed manufacturing activity fell to a 15-month low in August and was now shrinking.

The purchasing managers index hit 48.5 last month from 50.7 in July, marking the fourth straight month of decline, Anything below 50 points to contraction and anything above indicates growth. Equally as worrying, the survey showed new exports business contracted for the third month in a row, while a decline in total new orders was the first recorded since May 2012, HSBC said.

Jakarta’s stock market closed down 2.24 per cent after the data was released, while the rupiah weakened to 10,950 to the dollar from 10,920.

It has already lost about 12 per cent against the dollar this year.

Emerging economies from Indonesia to Brazil have seen a huge flight of capital as dealers repatriate to the US expecting the Fed stimulus – which has fuelled an investment spree in developing countries for the past year – to dry up. And among countries to suffer the most are those with big current account deficits.

July’s deficit was a “a nasty and badly timed surprise”, Credit-Suisse economist Robert Prior-Wandesforde said, adding that the central bank needed to do more.

Bank Indonesia has already hiked interest rates 1.25 per centage points since June to 7.00 per cent in a bid to shore up the economy and support the ailing rupiah. Monetary tightening tends to increase the value of currencies.