Indonesia will be vigilant on economy, says finance minister

Indonesia’s finance minister said she was prepared to reimpose higher taxes on imports to keep the country’s ballooning trade deficit in check if the country was unable to boost exports in the face of a slowing global economy. 

Jakarta raised tariffs on about 1,100 items in 2018 after the rupiah plummeted to levels not seen since the 1997-98 Asian financial crisis. This forced the central bank to lift interest rates six times in as many months from 4.25 per cent to 6 per cent to halt the slide in the currency.

Whether via import tax or boosting export revenue, “we are going to make sure that we are going to use fiscal tools in order to support our exports”, Sri Mulyani Indrawati told the Financial Times.

“If necessary, when exports cannot catch up that fast . . . then you have to have the willingness to accept that the current account deficit can only be narrowed by cutting the imports,” added Ms Indrawati, who is being touted as a possible candidate to replace Jim Yong Kim as president of the World Bank.

Ms Indrawati’s comments come as Indonesia — the largest market in south-east Asia and the fourth most populous country in the world — announced a record trade deficit of $8.57bn for 2018, according to Reuters, with exports faltering due to subdued demand from its most important markets.

However, Ms Indrawati argued it was normal for a developing country to run a trade deficit.

Capital flowed out of Indonesia in 2018 to chase rising rates in the US and the rupiah slid, at one point losing almost 13 per cent from its value at the start of the year, according to Reuters — raising concerns about Jakarta’s ability to finance its current account deficit.

But Indonesia’s policy response to the currency drop seems to be paying off. Capital has flowed back into the country, with $7.9bn returning to the market in November 2018, according to the central bank.

The rupiah’s fall has also reversed, with the currency clawing back about 7 per cent of its value from last year’s low point of more than Rp15,200 to the dollar in October. 

Ms Indrawati said Indonesia needed to remain “vigilant”. But a repeat of the Asian financial crisis was “definitely” impossible, given Indonesia now had a flexible exchange rate, an independent central bank, a stronger fiscal position and more room to play with policy to stem volatility.