"We will try to reduce the CAD to a level below three percent. The International Monetary Fund (IMF) predicts it will reach 3.4 percent," Finance Minister Chatib Basri said.
Jakarta (ABTARA News) - Finance Minister Chatib Basri said the government would take steps to lower the country`s current account deficit (CAD) to below three percent.

"We will try to reduce the CAD to a level below three percent. The International Monetary Fund (IMF) predicts it will reach 3.4 percent," the finance minister said, after attending a hearing at the House of Representatives (DPR) here on Tuesday.

He further expressed confidence that the rising current account deficit would fall in the third quarter of this year due to the increase in subsidized fuel oil prices.

"I believe that our current account deficit at the end of the year would be about three to four percent of the gross domestic product (GDP). The CAD in the third quarter will be lower than the CAD in the second quarter," the minister added.

He noted that the deficit would improve in the third quarter as a result of the subsidized fuel oil price hikes. This improvement should become apparent in the next few months.

However, the minister also admitted that the positive impact of the price hikes would not be felt in the first month.

Meanwhile, Chief Economic Minister Hatta Rajasa said last month that the recently announced package of economic policies, if implemented properly, would reduce the current account deficit below three percent in the third quarter of this year.

"We believe the CAD, which is now 4.4 percent of the gross domestic product, will drop below three percent in the third quarter," Hatta told a press conference.

"The CAD can be overcome in one of two ways: increasing exports or reducing imports. These are the ideal options that will produce a surplus in our trade balance," the coordinating minister for economic affairs added.

However, these methods would require a long-term commitment and would not address the current deficit.

"In the long run, we can increase exports by raising the volume of value-added goods we export, while reducing exports of raw materials. For now, we need a short-term solution to the CAD," he stated.

The government expects to overcome the deficit by reducing imports, particularly in oil fuels.

"Under closer inspection, (it is clear that) the CAD was mostly created by large volumes of oil imports. We still have a surplus in our non-oil and non-gas trade balance," the minister explained.

He also said consumption of imported diesel oil for subsidized fuel each year had reached 17.5 million kiloliters, while consumption of imported diesel oil was 17.5 to 18 million kiloliters.

"Added together, total diesel imports have reached 35 million kiloliters per year. This will reflect a high cost, if it is multiplied by Rp9.7 thousand per liter. So, the best solution for reducing the CAD in the short term is to reduce oil imports," he remarked.

Hatta pointed out that reducing the deficit in this manner could offer two advantages, including encouraging people to use bio-fuels derived from crude palm oil.

"We will have two advantages: the reduction of import values and the economization of oil fuel consumption," the minister added.(*)

Editor: Heru Purwanto
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