Ending 2018 with confidence
The month of December 2018 is set to end with greater confidence. Indonesian President Joko Widodo inaugurated the last stretches of the Trans Java toll road on December 20, 2018, and on the following day holiday travelers started to utilize the road happily. Many Indonesians celebrate Christmas as well as the New Year in their home towns. In the past, that tradition made the management of outbound traffic from the cities quite complicated. However, with the completion of the Trans Java toll road, holiday travels will become easier, faster and more enjoyable. The completion of these projects also underscored the success of the incumbent government in developing connective infrastructure, which is very important in the run-up to the presidential election.
The confidence of the government was also due to its success in collecting revenue, helping Indonesia's fiscal position, which should have been stretched by the major drives in infrastructure development as well as in income distribution. However, the fiscal situation has recently improved. As of November 2018, the primary balance reached approximately Rp.30 Trillion, or about 0.2% of GDP. It is expected that the overall fiscal deficit for 2018 will be approximately 1.85% of GDP, lower than the deficit target of 2.19% of GDP.
The only drawback was the recent spike in the trade deficit. Aside from the major increase in the oil and gas deficit, the deficit was also caused by the slow growth of exports, which could not match the sharp rise in imports. One thing that has made us a bit skeptical about the recent GDP data is the strong growth of imports, as well as the sharp growth of the government's revenue collection, and the strong increase in bank lending. All these variables should supposedly lead to better growth of Indonesia's GDP. Therefore, we continue to believe that the Indonesian GDP should be better than currently reported.
As mentioned, in the midst of such confidence, the Indonesian balance of trade reported another deficit in November 2018, the largest monthly deficit for the last three years. Exports for that month declined considerably, while imports dropped marginally. Exports reached $14,831.6 million, considerably lower than October's $15,894.2 million, a decline of 6.69%. Compared with the same period of the previous year, total exports declined by 3.28%. Meanwhile, imports in November declined marginally, by 4.47% month over month, to reach $16,878.6 million. Year over year, imports grew by 11.68%. This resulted in a trade deficit in November of $2,047.0 million, the highest monthly deficit in the last few years.
The Central Board of Statistics also released the Consumer Price Index, which showed mild inflation of 0.27% in November. With that performance, year-over-year inflation stood at 3.23%, in the lower part of the target corridor of the Central Bank. With that sanguine inflation, and the relatively stable exchange rate of the rupiah, Bank Indonesia decided at its meeting in December 2018 to keep the benchmark interest rate constant at 6%, even though the US Federal Reserve had announced an increase of the Federal Funds rate by 25 basis points just one day earlier.
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