​Indonesia: Arguing the accuracy of the national account statistics

INDONESIA - Report 28 Feb 2019 by Cyrillus Harinowo

The Indonesian Central Board of Statistics released in early February the national accounts data for the Q4 2018 performance of the economy. As predicted in our earlier report, in Q4 2018 the economy was reported to have grown at the rate of 5.18%, which led to overall growth of 5.17% for the entire year. This rate of growth was slightly higher than in 2017, when growth was 5.07%.

However, as I noted in my earlier report, there were several variables that correlate strongly with the development of GDP. The first is imports, which grew by 22% in 2018​. This is significantly higher than the 15.5% rate achieved in 2017. Second is the rise in the government tax revenue: in 2017, tax revenue increased by just 4.08%, while in 2018 it grew 13.2%. This higher rate of growth should lead to a higher rate of growth of the economy. Last but not least is the increase in loan demand. In 2017, loan demand increased by approximately 8%, while in 2018, it increased by almost 13%.

The significant increase in these three variables compared with the previous year should indicate a sharper rate of growth in the economy. Yet the economy only grew at a relatively stable rate. My own prediction on the economy was that in 2018 Indonesian economy would grow by at least 6%, and that was a conservative prediction. Which sector should have achieved a higher rate of growth? Since the largest component of imports came mostly in the form of raw materials, almost 80% of the total, the manufacturing sector should benefit from higher economic growth.

Regarding the external accounts, in Q4 2018 and over the entire year, one of the main problems faced by the Indonesian authorities has been the current account deficit. In Q4 2018 the current account deficit stood at 3.57% of GDP, up from 3.28% of GDP in Q3 2018. For full-year 2018, the current account deficit stood at 2.98% of GDP. However, since the financial and capital account of the balance of payments recorded a higher surplus in Q4, the overall balance of payments registered a significant surplus, leading the the foreign exchange reserves of the Central Bank to increase to $120.6 billion at the end of December 2018. Foreign exchange reserves of Bank Indonesia fell slightly in January, to reach $120 billion.

The Central Board of Statistics also released the balance of trade data for the month of January 2019. The Indonesian balance of trade once again registered a deficit, to the tune of $1,159.5 million. While exports declined slightly, by 3.24%, to reach $13,869 million in January, imports declined at a slower pace. In January 2019 imports reached $15,028.5 million.

The Central Board of Statistics' inflation report showed relatively mild inflation for the month of January, at 0.32%. With that performance, year-over-year inflation stood at 2.82%, a level at the lower end of the target corridor of the Central Bank. At the same time, the Indonesian exchange rate remained stable, so the Central Bank decided to keep the benchmark interest rate constant at 6.00% at its meeting in February 2019 in order to further boost the economy.

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