JAKARTA, Aug 21 (The Indonesia Herald) - Indonesia's current account deficit widened sharply to $12.5 billion, or 3.3% of gross domestic product, in the second quarter of 2026 as robust domestic demand outpaced local supply, a prominent private sector economist said on Friday.
The gap expanded by nearly $9 billion in just three months, up from $3.6 billion, or 1.0% of GDP, in the first quarter of 2026. According to Fakhrul Fulvian, chief economist at Trimegah Sekuritas Indonesia, the sudden deterioration was primarily driven by a narrowing merchandise trade surplus combined with widening deficits in services and primary income accounts.
Despite the steep increase, Fulvian noted that the widening deficit does not indicate a fundamental weakness in Southeast Asia's largest economy. Instead, it reflects structural friction as economic momentum accelerates faster than domestic production can keep pace.
Indonesia's economy grew 5.29% year-on-year in the second quarter of 2026. However, real imports of goods and services grew at a much faster rate, expanding 8.82% annually and rising 12.39% from the previous quarter.
"We have successfully mobilized demand. Now the question is whether our supply capacity can move just as fast," Fulvian said in a statement to InfoPublik on Friday. "If demand growth outpaces domestic manufacturing capabilities, part of that growth leaks out as imports and ultimately manifests as pressure on the current account."
Fulvian emphasized that the surge in imports was heavily concentrated in productive assets rather than consumer goods. Non-oil and gas imports reached $62.0 billion during the second quarter, marking a 17.6% increase compared to the same period last year.
Raw materials accounted for 63.5% of total non-oil imports, growing 21.8% year-on-year, while capital goods comprised 24.2% of the total after surging 15.5% annually. In addition, real non-oil import volumes rose 11.3%, confirming that the increase was driven by higher physical volume rather than price inflation.
"This is not a simple story of citizens suddenly consuming too many foreign consumer items. The vast majority of our imports consist of raw materials and capital equipment," Fulvian said.
He explained that the import surge aligns with Indonesia's broader investment cycle, which requires heavy equipment, machinery, technology, and specialized components for resource downstreaming projects, industrial parks, manufacturing hubs, energy development, and digital infrastructure such as data centers.
In an industrializing economy, importing machinery to build initial capacity before generating output or exports is a natural progression, Fulvian noted. However, he warned that these investments must yield tangible domestic output over time.
"The machines we import today must become production tomorrow. The electronics we import today must become digital capacity tomorrow. And today's investment must become future exports or import substitution. Otherwise, we are not building capacity; we are merely importing growth," he said.
Looking ahead to economic policy in 2027, Fulvian argued that the 3.3% deficit figure should not trigger an economic slowdown or lead policymakers to abandon growth targets. Rather, it underscores the necessity of building domestic supply capabilities alongside demand stimulation.
Without local production upgrades, increased consumer spending, corporate investment, and government expenditure will continue to push imports ahead of exports, heightening external vulnerabilities.
Fulvian added that the current account position acts as an effective "speed limit" for monetary policy set by Bank Indonesia. While looser monetary conditions, increased system liquidity, and faster credit growth are desirable to fuel private sector expansion, excessive import leakage forces the central bank to prioritize currency stability over growth support.
"If stimulus generates excessive imports and foreign exchange demand, Bank Indonesia will ultimately have to refocus on stabilizing the rupiah," Fulvian said. Strengthening domestic supply, he noted, would reduce import leakage and create broader room for monetary accommodation.
On the broader balance of payments, capital and financial account inflows remained resilient, posting a surplus of approximately $12.0 billion in the second quarter. This offset most of the current account deficit, leaving the overall balance of payments with a manageable deficit of roughly $0.9 billion.
"Domestic growth produces a current account deficit, while capital inflows generate a financial account surplus," Fulvian said, noting that foreign capital has become essential to maintaining Indonesia's macroeconomic equilibrium.
Financial markets have already reacted to these external pressures. The Indonesian rupiah recently depreciated toward 18,200 per U.S. dollar as investors anticipated increased foreign currency demand ahead of official economic releases.
"Markets move ahead of the data. The rupiah's previous weakness toward 18,200 already reflected market concerns regarding foreign exchange needs, rising imports, and the balance of payments," Fulvian noted.
Looking forward, Fulvian projected that the rupiah could recover to between 16,700 and 17,200 per U.S. dollar by the end of 2026, provided capital inflows regain momentum and external balances improve. He reiterated his estimate that Indonesia requires around $11 billion in total capital inflows to stabilize the exchange rate and keep external accounts in a comfortable position.
However, Fulvian stressed that reliance on foreign capital is only a temporary fix.
"Capital flows can buy us time, but only capacity building solves the problem," he said, calling for deeper domestic supply chains, expanded production of raw materials and components, local capital goods manufacturing, and energy sector expansion.
"Growth requires demand, but high growth requires capacity," Fulvian concluded. "Capital inflows can maintain short-term balance, but only domestic capacity expansion can push Indonesia's growth limits higher over the long term." (InfoPublik.id)