Mixed consolidation of external accounts
At first glance, Indonesia consolidated its external accounts in 2021. Foreign exchange reserves amounted to USD 131 billion, equivalent to 8.3 months of imports of goods and services, while external debt n only reached 35% of GDP, less than the pre-Covid level. In addition, the current account posted a slight surplus (0.3% of GDP) for the first time since 2011. The good performance of the current account reflects the strong increase in the trade surplus, which swelled to 4.1% of GDP, rising from an average of 1.3% over the past five years. Although imports increased by almost 6 points of GDP compared to 2020, Indonesia recorded a strong increase in its exports, driven by higher commodity prices for coal, iron ore and oil. Palm oil.
On the other hand, the results of the financial account were disappointing. Foreign capital inflows are still well below pre-Covid levels. Foreign direct investment (FDI) was only 1.5% of GDP, down from 2% of GDP in 2019. Despite government reforms aimed at attracting foreign investment, Indonesia remains one of the ASEAN countries that receives the least FDI. As a result, the country is structurally dependent on portfolio investments to finance its current account balance, which should return to deficit this year. In 2021, foreign investors were relatively adverse to Indonesian risk and net portfolio investment inflows were only 0.5% of GDP. In 2022, investors should once again avoid Indonesia given international geopolitical tensions.