GO
Loading...

Indonesia Finance Minister: No deficit issue in 2014

South East Asia's largest economy was hit hard by the tapering panic that gripped markets last year, but Indonesia's finance minister told CNBC that the country's current account deficit would not be an issue this year.

Last year Indonesia hit the headlines as its stock market plunged 26 percent from late May to late August, as investors panicked amid expectations that Federal Reserve would soon taper its asset-purchase program. Countries with high current account deficits like Indonesia were hardest hit.

However, since then Indonesian policy makers have taken sizable steps to shore up their finances. The changes have paid off; in the more recent emerging market sell off Indonesia's currency and stock market held up relatively well. The rupiah is only 0.1 percent down on its level at the start of the year, in contrast to the Argentine peso, for example, which has plunged 21 percent against the greenback.

(Read More: Why Fed volatility is emerging markets' 'poison')

"One of our problems was our current account deficit in the second quarter in 2013, and the only way you solve the problem is by tightening the fiscal and the monetary policy, and that's what we did," said Chatib Basri.

Adek Berry | AFP | Getty Images

Indonesia's current account deficit came in at a record 4.4 percent of gross domestic product (GDP) in the second quarter of last year, but fell to 3.8 percent of GDP in the third quarter. The central bank now expects it to moderate to 3.4 percent in 2014.

The improvement has been spurred by aggressive tightening by Bank Indonesia, which has raised interest rates by 175 basis points since June. In December, the economy logged a third straight monthly trade surplus, in a positive sign for the current account deficit.

(Read More: Has the Fed left emerging markets out in the cold?)

However, one potential headwind to the economy's improved finances could be last month's ban on mineral ore exports. Policy makers hope the ban will help boost profits from its mineral sector by forcing miners to process their ore domestically before exporting it.

As countries with current account deficits import more than they export, some analysts have said the ban could worsen the deficit as if exports are hurt as a result.

But Basri said the costs of implementing the ban would be partially offset by heftier import taxes.

"And don't forget with the depreciation of the rupiah we would expect stronger export and lower imports, so I don't think the current account deficit will be a problem in 2014," he added.

(Read More: Will Indonesia's export ban hurt its current account?)

The rupiah was the worst performing currency globally last year, falling over 20 percent against the greenback.

Basri said he was comfortable with the rupiah's current value; it was trading at 12,170 to the dollar in Asia on Thursday.

"The stability of the rupiah in the past few weeks following the collapse of the [Argentine] peso and other emerging markets shows that more or less the rupiah is in equilibrium now," he said.

(Read More: Is Indonesia's rosy growth a flash in the pan?)

Furthermore, Basri added that he believed Indonesia's investment-grade credit rating would remain intact.

"I'm pretty confident [that we will not be downgraded]. Our numbers in the last quarter of 2013 are much better than what we've had in others. The ratings agencies did not downgrade our position, even during September and October which was a difficult time," he added.

Indonesia's economy grew 5.72 percent on year in the final quarter of 2013, up from 5.6 percent in the previous quarter. Growth in the final quarter was buoyed by exports and private consumption.

— By CNBC's Katie Holliday: Follow her on Twitter @hollidaykatie

Contact Asia Economy

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    To learn more about how we use your information,
    please read our Privacy Policy.
    › Learn More