Chamber of Commerce: Remittance and tourism become quick solutions to reducing CAD

This article has been translated by PwC Indonesia as part of our Indonesia Infrastructure News Service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.

Investor Daily -  Kadin: Remitansi dan Pariwisata Jadi Solusi Cepat Kurangi CAD

27 May 2019

Jakarta — Chamber of Commerce and Industry (Kadin) hopes that the government can optimise the tourism and remittance sectors to reduce the amount of the current account deficit (CAD). The high amount of CAD is seen as one of the factors that halts the domestic economic growth.

“In my opinion, there are two quick ways [to reduce] CAD, which are remittance from Indonesian workforce (TKI) and tourism optimisation, with those two, a surplus can be achieved,” said the Director General of Kadin Rosan Roeslani, in Jakarta, last weekend.

Bank Indonesia (BI) recorded a current account deficit in the first quarter of 2019 at US$ 7billion or 2.6% of Gross Domestic Product (GDP). This amount is lower compared to the deficit in the previous quarter of US$9.2 billion or 3.6% of GDP.

Rosan compared Indonesia to the Philippines which had the same number of workforce working overseas, but Indonesia’s remittance was smaller compared to the Philippines. The number of Indonesian workforce (TKI) is about 4 million people, generating a remittance of US$10 billion. While the Philippines with the same number of workforce could generate a remittance of US$30 billion.

According to him, the government needs to make a breakthrough by holding a vocational training for TKI. With an increase in skill, it is expected to increase the income of TKI which will lead to a rise in the foreign exchange.

“Vocational [training] for the TKI such as English education. There has to be a breakthrough, I see [the increase in] remittance is possible,” said Rosan.

The second sector that can be improved is tourism. Tourism is also a quick way to resolve the CAD problem. Currently the Indonesian tourism sector is still losing to neighbouring countries such as Thailand and Malaysia.

“Our tourism is currently left behind by Thailand which has 40 million [tourists] and Malaysia with 35 million”, Rosan stated.

 

Correspondence Bank

In line with Rosan, Dean of Economy and Business Faculty of the University of Indonesia (UI) Ari Kuncoro said to increase the amount of foreign exchange, the government should increase remittance from TKI. This could be done by establishing a correspondence bank in a country where many TKIs reside, such as Singapore, Korea, Hong Kong, Seoul, and Tokyo. In those country, many TKIs work in the formal sector.

“TKI’s income in those countries are higher. If many correspondence banks are established then the money would come straight to Indonesia, so it would increase foreign exchange reserve,” said Ari.

Economist of UI Telisa Aulia said if seen in seasonal pattern, the position of CAD would improve in the first quarter because in this quarter the amount of imports was low. However in the second quarter it usually improved because of the month of Ramadhan and Lebaran celebration.

“This is already reflected in April, what about May and June? If seen from the seasonal pattern, with trade war heating up and commodity prices declining, there’s a small chance that CAD would improve from the first quarter,” said Telisa.

She stated that what should’ve been paid attention to was economic fundamentals. The structure of balance of payment couldn’t always rely on foreign capital inflow.

“Our economy will not improve properly if we only rely on capital inflow,” Telisa said firmly.

 

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