Current Account Deficit Triggers Currency Weakening

Economics & Macro

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11/03/2019 17:23 WIB

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High domestic demand driven by booming infrastructure development, coupled with declining non-oil and gas export performance, resulted in Indonesia's current account deficit of US$31 billion in 2018.

Ratio of Current Account Deficit to GDP in Several Countries (2006-2018)

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Ratio of Current Account Deficit to GDP in Several Countries (2006-2018)

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The current account deficit is one of the factors contributing to the weakening of the Indonesian Rupiah against the US dollar. As is known, the Rupiah weakened to over Rp 15,000 per US dollar last year, in line with the widening current account deficit.

Based on Bank Indonesia data, Indonesia's current account deficit ratio reached 2.98% of Gross Domestic Product (GDP), nearly reaching the safe threshold of 3%. This caused the Rupiah to fluctuate in the second half of 2018. High domestic demand, fueled by extensive infrastructure development, coupled with declining non-oil and gas export performance, resulted in a US$31 billion current account deficit for Indonesia in 2018.

Indonesia is not alone in experiencing a weakening against the US dollar. The Turkish Lira also depreciated significantly due to a current account deficit reaching 5.6% of GDP. Meanwhile, developing countries with current account surpluses, such as Thailand, experienced relatively more stable currency movements.

"Disclosure: This is an AI-generated translation of the original article. We strive for accuracy, but please note that automated translations may contain errors or slight inconsistencies."