Indonesia posts surprise trade surplus in March, analysts doubt sustainability

JAKARTA, April 15 () - Indonesia posted a surprise trade surplus for a second straight month in March, supporting the central bank's outlook of a narrowing current account deficit, but economists warn a trade deficit could return after Wednesday's presidential elections.

Indonesia had a surplus of $540 million in March, the largest since June 2018 and compared with a forecast of $180 million deficit in a poll. This followed February's surprise $330 million surplus.

Last year's record $8.5 billion trade deficit has been used by opposition candidate Prabowo Subianto to attack President Joko Widodo, saying the incumbent has managed the economy badly.

Indonesians will vote on Wednesday to decide who gets to lead Southeast Asia's largest economy in the next five years.

A risk of trade deficit returning after this week's elections is "highly likely", said Bhima Yudhistira Adhinegara, an economist with the Jakarta-based think tank Institute for Development of Economics and Finance (INDEF).

He argues that imports of building materials used in Widodo's infrastructure push, which have been paused since last year, could resume after the elections.

"If the candidate number 2 wins, he has pledged to cut staple prices within his first 100 days, so he would likely have to import food too," Adhinegara said, referring to Prabowo.

Wisnu Wardana, an economist with Bank Danamon, said investment-related imports appeared to have been halted in the first quarter and that the sustainability of trade surplus would depend on whether investment picks up post elections.

Imports fell 6.76 percent from a year earlier to $13.49 billion in March, marking the third consecutive month of contraction, led by declining shipments of raw materials. The poll had forecast a 3.76 percent decline.

Meanwhile, exports dropped sharply, at a 10.01 percent on-year rate, to $14.03 billion, although not as much as the 11.82 percent fall expected in the poll.

Analysts say an improvement in trade and current account deficits is a determining factor for Bank Indonesia (BI) to start loosening monetary policy, now that inflation is stable and the U.S. Federal Reserve will probably not raise rates further this year.

BI last year increased rates by a total of 175 basis points in response to a weak rupiah and capital outflows that were partly prompted by rising U.S. interest rates and large trade and current account deficits.

The latest data suggested 2019's current account gap would narrow to 2.78 percent of GDP from 2.98 percent last year, Bank Mandiri's economist Andry Asmoro said.

BI may also wait and see what kind of economic changes the elections bring before cutting interest rates, said INDEF's Adhinegara.

The central bank's next policy meeting is scheduled for April 24-25.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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