BALANCE OF PAYMENT, CAPITAL INFLOWS, FOREIGN DEBT
Arranged
By :
Tarih Hiraamil Bararah Wijaya
Irfan Rifa’i
Josua Reinaldi Lumban T
Class :
1EB21
GUNADARMA
UNIVERSITY
ATA 2015/2016
CHAPTER 1
DISCUSSION
OF THE MATERIAL
1.1
Balance of Payment
The balance of payments is often called the balance
of payments (BOP) is an overview that summarizes transactions between residents
of a country with the population of other countries for a certain period
(usually one year) including what is in a country's international trade
transactions. Meanwhile, according to the IMF (1993), Balance of payments is a
record of systematically arranged on the entire economic transaction which
includes trade in goods / services, financial and monetary transfers between
residents of a country with the population of other countries for a certain
period of time.
The balance of payments includes the purchase and
sale of goods and services, grants from individuals and foreign governments,
and financial transactions. Generally the balance of payments is divided; the
current account; traffic balance sheet and financial capital; and financial
items. However, included in the international balance of payments just
international economic transactions only, while military aid transactions are
not included in it.
Wisdom of the balance of payments is an integral
part of the development policy and has an important role in the establishment
of stability in the economy. In addition, it also endeavored to achieve a
fundamental change in the structure of production and foreign trade so as to
enhance the resilience of the Indonesian economy to challenges at home and
turmoil-world economic turmoil, as outlined in the Guidelines of State Policy.
In the field of trade, balance of payments wisdom
intended to improve the efficiency and productivity of the domestic industry,
supporting the development of non-oil exports, maintaining price stability and
the supply of goods needed in the country and to support the business climate
more attractive for investment. Policy on foreign loans complement the
financing needs of development in the country and directed to maintain stable
development of the overall balance of payments. Wisdom foreign exchange rate
aimed at encouraging non-oil exports and support the monetary policy in the
country.
1.2. Factors Driving The existence of International
Trade
Every country around the world is certainly
melakuakan export-import goods to and from other countries as part of
international trade transactions in the country. The factors that drive their
international trade is as follows:
a. Diversity Production Conditions
Biodiversity refers to the production conditions of
the potential factors of production owned by a state. In other words, through
trade, a country can acquire items that can not be produced domestically.
b. Production Cost Savings / Specialization
International trade allows a country to produce
goods in bulk, resulting in increasing returns to scale or average production
costs are decreasing while the number of goods produced increases.
c. differences tastes
Even if the production conditions in all countries
are the same, but each country may trade if their tastes are different.
1.3. Components of the Balance of Payments
Balance of payment consist of several components,
namely the balance of goods (trade balance) and the balance of services. Both
called the current account (current account) and capital account.
a. The goods balance (trade balance)
The goods balance is also called the current account
(current account). Export of goods is a credit transaction because the
transaction raises the right to receive payment (causing the flow of money or
funds into the country). Imports of goods are debit transactions because it
creates an obligation to make payments to other countries (causing the flow of
funds or money abroad).
b. Balance Services
The service account covers transactions in export
and import services. Exports of services include the sale of transport
services, tourism / tourism, insurance, investment income and capital abroad.
Exports of services including credit transactions. Import services include the
purchase of services from residents of other countries, including the payment
of interest, dividends or capital gains invested in the country by residents of
other countries.
1.4. Transactions in the Balance of Payments
Economic transactions in the balance of payments
menjai divided into two, namely debit transactions and credit transactions.
Here's his explanation:
a. Debit transactions, ie transactions which causes
current to flow money from domestic to overseas. This transaction is called a
negative transaction, the transaction leads to reduced foreign exchange
reserves, or in other words, the transaction resulted in the rise and increased
liability for state residents who have the balance of payments on hold payments
to residents of other countries. Debit transactions are recorded in the balance
of payments include: imports of goods and services, payment or investment, debt
reduction and an increase in financial assets.
b. Credit transaction is a transaction that causes
current to flow money from abroad into the country. This transaction is also
called positive transaction, that transaction will increase the country's
reserves, or in other words, the transaction resulted in the rise and increased
rights for residents of countries with the international balance of payments to
receive payments from other countries. Credit transactions recorded in the
balance of payment include: exports of goods and services, proceeds from the
investment, increasing the state or private debt, and the reduction of
financial assets.
In addition, the economic transactions in the
balance of payments can be divided into: current account (current account) and
capital transactions (capital account). The current account is a transaction
which includes goods and services, which in this transaction is a transaction
between countries whose value changes every time or every day. Capital
transactions (capital account) that the transaction involves an investment of
capital and gold.
The term often used in transactions in the balance
of payments, the balance of payments surpluses and deficits. The trade balance
is said to be surplus if the value of goods exports greater than imports.
Balance of payment policies intended to further increase foreign exchange
earnings (money) from exports to meet domestic consumption needs. The policy is
also aimed to save foreign exchange through import substitution and take
advantage of sources of funds from abroad, either in the form of loans and
foreign direct investment, and to support the expansion of employment
opportunities and equitable development. So instead, a country is said to be a
deficit if the import value more than the value of exports.
Indonesia is said to be a country that often have
credit-card account deficit. The reality is, the amount of imported goods more
than the exports. In other words, net exports had a negative value. The biggest
factor in the deficit caused by public Indonesia Indonesia consumptive. Facts
prove that the increase in GDP in Indonesia is driven by the consumption (C) of
about 60% when compared with other sectors. Additionally, masyarakata Indonesia
tend to like poduk overseas than domestic products.
1.5. Stages in the Balance of Payments
Each country tends to have several stages in its
balance of payments, from the debtor country young to middle creditor
countries.
a. Young debtor country where at this stage of a
country importing more than exporting the difference between them is closed
through foreign loans so as to enable the country to accumulate capital.
b. Associate debtor country where at this stage of a
country's trade balance has been in surplus, but the growth in dividends and
interest to be paid on foreign loans to make capital account balance is less
balanced.
c. Young creditor countries which at this stage as a
country develops its export incredibly, even countries to lend money to other
countries.
d. Associate creditor countries which at this stage
of capital income and foreign investment provides a large enough surplus to an
invisible zip then balanced against the trade deficit.
1.2
Capital Inflows
As a developing country, Indonesia requires
substantial funds to implement the national development. Needs substantial
funds are going for their efforts to catch up with the development of the
advanced countries, both regionally and globally region. Indonesia still has
not been able to provide the development money. Besides efforts to find
domestic sources of financing, the government also invited foreign financing,
one of them is Foreign Direct Investment (foreign direct investment as).
Investment is a function of economic growth. On the
other hand, the greater the investment of a country, the greater the rate of
economic growth can be achieved. Conceptually, foreign investment or foreign
investment is considered more advantageous because it does not require
repayment obligations to foreigners as well as foreign debt. Expected
investment as a driver of economic growth in Indonesia. Due to limited funds
owned by the government, to drive economic growth, the role of investment, both
foreign investment (FDI) and domestic (DCI) is expected.
1. Definition of capital inflows
capital inflow is the flow of capital flows from
abroad flowing into the private sector, either through direct investment
(direct investment) or indirect form of portfolio investment. Direct investment
(direct investment) is an investment that involves the investor directly in
business operations are carried out, so that the dynamics of business involving
the company's policy is set, the objectives to be achieved, can not be
separated from the interested parties (foreign investors).
There are three main sources of foreign capital in a
country which adheres to an open economy, namely:
a) foreign loan (debt) where the foreign loans made
by the government bilaterally and multilaterally.
b) foreign direct investment (Foreign Direct
Investment / FDI) in which FDI is a foreign private investments made to a
country, a branch of a multinational company, a subsidiary of multinational
companies, licensing, joint venture.
c) the investment portfolio of an investment made
through the capital markets (Didier & Beautiful, 2005: 26-47).
2. Foreign Policy in Indonesia
There are two things that affect FDI activity in a
country, the first is the environment or the policy framework of a country.
Basically, investors know the potential and condition of a country that will be
the location of the investment. Kerangaka this policy in several ways, namely:
a) economic stability, political and social
b) rules in favor of entry and operation of a
business
c) international agreements satndar
d) policy on the functioning and structure of the
market
e) international agreements in FDI
f) the policy of privatization and
g) trade policy and taxation.
In order to increase foreign direct investment in
Indonesia, the government through the Investment Coordinating Board (BKPM) has
made some effort to adjust investment policies, which are as follows:
a) The Government has renewed List of Businesses
Closed for Investors to be given the flexibility in choosing the business
investor (Presidential Decree No. 96 Year 2000 jo. No. 118 of 2000). In the
decision, the business sectors closed for investment both FDI and domestic
investment is reduced from 16 sectors menjdai 11 sectors. The business sectors
are closed to foreign ownership reduced from nine sectors into eight sectors.
b) Simplifying the process from 42 days to 10 days.
Previous PMA approval by the President, whereas today is done by high ranking
officials of the authorities, in this case the Deputy and the Investment
Facility;
c) As of January 1, 2001, the government replaced
the Tax Exemption incentives with Investment Tax Allowance of 30% for 6 (six)
years.
d) The value of the investment is not restricted,
entirely dependent on the feasibility study proyektersebut.
3. Development of FDI in Indonesia
The development of FDI in Indonesia is strongly
influenced by the situation in the country as well as abroad. Development of
investment in Indonesia often go astray, especially if the domestic investment
environment less conducive.
According to the list issued by the UNCTAD Indonesia
actually included an attractive country for investors. Especially for TNCs
(transnational companies); namely that large-scale investors. According to a
survey of UNCTAD in 2011 Indonesia occupies the 4th place, after China, USA and
India. Other developing countries are included in the list of UNCTAD are: Brazil,
Mexico, Thailand, Vietnam, South Korea and Malaysia. In contrast, although in
Indonesia, including the UNCTAD list of countries that are potentially
interesting but seen from the figures of the ASEAN Secretariat, Indonesia
occupies only a low place in ASEAN; namely the 5th place out of 10 countries.
The amount of investment that actually go to Indonesia is smaller than the
amount that goes to Singapore, Thailand, Malaysia, and even which also goes to
Vietnam
1.3
Foreign Debt
Indonesia is a developing country, Indonesia has a
major problem in terms of capital. Capital is divided into two, namely capital
from domestic and foreign capital that is commonly called the debt. In
perkembangannnya, Indonesia prefer to use instant and quick way to finance the economy
by using foreign debt. The use of foreign debt in the short and long term will
affect the economy in Indonesia.
External debt is a serious problem of government. If
a country has a foreign debt problem that arises is that concerning the debt
burden of debt principal and interest payments abroad. The government should
work to improve the growth of exports so that foreign exchange reserves (income
countries) to increase and reduce the debt habit. Better utilize existing
resources creatively is not dependent on outside assistance. Then improve its
human resources in order to compete with the foreign public. Because Indonesia
itself has natural resources that many are already supposed to be in if the
well.
CHAPTER
II
ANALYSIS
AND CASE STUDY
2.1
Analysis and Case Study Balance of Payment
2.1.1
Analysis Balance of Payment
Often ignore the international transactions with
each other, so that imbalances in the balance of payments associated with the
transaction without seeing his relationship with others. Examples: overseas
investments considered adding balance of payments deficit, because the cause
capital outflows. However, if further review, this investment will support the
export of raw materials or other. Similarly, the provision of assistance from
other countries will add to the balance of payments deficit, yet most aid
(mainly from developed countries) in the form of assistance in the form of
money spent domestically or tied aid which means aid is used to buy goods
produced by the country granting help.
The surplus in the transaction in progress is often
considered to be good, otherwise the deficit is considered ugly. Such
presumption is not always correct. The deficit or surplus in the transaction in
progress do not need to worry as long as the deficit or surplus is offset by
capital flows into or out of the same amount
2.1.2
Case Study Balance of Payment
In the first quarter of
2014, Indonesia transaction performance is getting better .. The current
account deficit fell from US $ 4.3 billion in the fourth quarter of 2013 to US
$ 4.2 billion in the first quarter of 2014. Although non-oil imports declined,
the surplus balance Non-oil trade first quarter of 2014 were lower than the
non-oil trade balance surplus in the fourth quarter of 2013. this affected the
performance of non-oil exports decline in the first quarter of 2014 reflected a
negative growth in exports to the main partner countries such as China, Japan,
India, Malaysia, Korea south, and Thailand, the decline in global commodity prices,
and the effect of banning the export of raw mineral commodities.
The
decline in exports to China mainly because of the decline in the export of coal
and natural rubber processed, with a total share of 38.8% of the total exports
to that country. The decline in exports to Japan influenced the decline in the
export of coal and base metals which constitute 30.2% of the total share of the
total exports to that country. Reduced exports of vegetable oil which is a
32.2% market share in India being the main cause of the decline in exports to
that country. Exports to Malaysia pressured by lower coal exports and goods of
base metal. The decline in exports to South Korea due to lower exports of
barutabara and articles of base metals which constitute 42.2% of total share of
total exports to that country. Meanwhile, exports to Thailand were also
decreased influenced by the decline in exports of machinery and mechanical with
a share of 10.7% of total exports to that country.
The
improving economic fundamentals also encourage foreign investors to invest in
Indonesia so that the capital and financial account had a surplus of US $ 7.8
billion. The capital and financial account surplus was also sourced from
foreign direct investment inflows are still strong and recorded at the same
level relative to the previous quarter.
2.2 Analysis and Case Study Capital Inflows
2.2.1 Analysis Capital Inflows
Investment is a function of economic growth. On the
other hand, the greater the investment of a country, the greater the rate of
economic growth can be achieved. Conceptually, foreign investment or foreign
investment is considered more advantageous because it does not require
repayment obligations to foreigners as well as foreign debt. Expected
investment as a driver of economic growth in Indonesia. Due to limited funds
owned by the government, to drive economic growth, the role of investment, both
foreign investment (FDI) and domestic (DCI) is expected
There are two things that affect FDI activity in a
country, the first is the environment or the policy framework of a country.
Basically, investors know the potential and condition of a country that will be
the location of the investment. Kerangaka this policy in several ways, namely:
a) economic stability, political and social
b) rules in favor of entry and operation of a
business
c) international agreements satndar
d) policy on the functioning and structure of the
market
e) international agreements in FDI
f) the policy of privatization and
g) trade policy and taxation.
2.2.2
Case Study Capital Inflows
Law on Foreign Investment enacted in 2007, further
implying that the government was powerless refuse interventions and foreign
interests.
The most prominent evidence is when drinking Aqua
(74% owned by the French company Danone). In 1997, as a result of the monetary
crisis, PT Aqua recorded growth below 30%. That is because the company only
earned a net profit of Rp 7.8 billion, down by 25% compared to 1996. In
addition, the company's revenue also fell by 23% from Rp 220.8 billion to Rp
179.4 billion in 1996 (Financial Highlights Aqua, 1997) ,
Therefore, PT Aqua decided to sell some of its
shares to foreign investors in this regard is the French Danone, with the
acquisition of shares. The acquisition of shares occurs when a company acquires
the voting rights of other companies and the two companies continue to operate
as separate legal entities, consequently emerged the parent company and
subsidiaries (Floyd A.Beams, 2000: 2).
Takeover it had appalling many parties, the article
is a company Aqua Bottled Drinking Water (bottled water) that has the highest
number of sales and the most famous. For Danone, Aqua is definitely a lucrative
bottled water. Aqua proven production directly accounted for about 12% of the
total volume of production of drinking water Danone worldwide. With a share of
50 pesen, Aqua has now become the market leader of bottled water in Indonesia.
The acquisition of Danone shares in PT Aqua in 1998 only amounted to 40% and
that's a starting point for the rapid development of PT Aqua, where PT Aqua is
able to generate a net profit of Rp 19 billion, or an increase of 143% from the
previous year.
2.3
Analysis and Case Study Foreign Debt
2.3.1
Analysis Foreign Debt
External debt is already a common thing
that happens in this country Indonesia, Indonesia's dependence on Foreign
Affairs was still the very dependence of all. We can see from the factors that
cause the increase of foreign debt in Indonesia as the first, Current Account
Deficit (TB), TB is the ratio between the amount of payments received from
abroad and the number of payments to foreigners. In other words, shows the
total foreign trade operations, trade balance, and balance between export and
import, transfer payments. The current account decreased each year, is still a
surplus, meaning that it should not need to do the loan debt. But
no-forecasting forecasting that said fore quarter deficit so needed foreign
loan debt, Indonesia finally back debt and increased the debt owed by Indonesia
against luarg country. In this regard, the role of government is needed at all.
Kebijaksanaa in solving the problem is also needed. Where the government should
maximize the abundant natural resources in Indonesia to menimimalisir imported
from abroad. Because in our country is actually very rich in natural resources,
just how we wisely take advantage of all that wealth as possible to minimize
dependence on foreign Indonesia. It will also push the foreign debt shrink.
Secondly, the increasing investment
needs. Investment is an investment for one or more of assets owned and usually
long-lasting in the hope of benefit in times to come. Almost every year
Indonesia is facing a shortage of investment funds. By the year 2011, the
number of savings accounts: 12.84 trillion, while investment of Rp 2458.6
trillion. This encourages increased borrowing LN. In addition to the scarcity
of funds, rising foreign debt is also driven by interest rate differentials.
The most unavoidable here is the difference in interest rates, it is very influential
at which the Indonesian rupiah currency as its currency value far in comparing
foreign countries. So it is quite difficult to control foreign debt. Because
meningkatnyasemakin increased investment happens, it is pushing Indonesia into
debt because interest rates are different.
Third, rising inflation. Inflation is a
process of rising prices in general and persistent (continuous) with regard to
market mechanisms that can be caused by various factors. The inflation rate
affects the interest rates, because inflation expectations is a component of
nominal interest rates. The inflation rate of 0.32% oktober 2011 november 2011
and then increased to 0.34% trand rising inflation led to Bank Indonesia cut
interest rates even until 50 november 2011, namely the interest rate of 6%.
With low interest rates, the interest of people to invest is low, then
government spending to meet the country through foreign loans. Due to the low
interest of the Indonesian government resorted to foreign debt, increases in
the prices of goods that constantly is why people are reluctant to invest.
The fourth, inefficient economic structure measuring
devices ICOR. Incremental capital output ratio (ICOR) is the ratio of
investment in the past year with growth of output (GDP). ICOR 4.9 (1984-2011)
should be between 3 - 3.5. So no waste of approximately 30%, because it is not
efficient in the use of capital, it requires a great invetasi. This will
encourage foreign debt.
2.3.2
Study Case Foreign Debt
Indonesia's foreign debt in January 2014 recorded
USD269,3 billion that grew 7.1% compared with growth of 4.6% in December 2013.
The increase in growth was mainly influenced by the increase in foreign debt
position of the private sector by 12.2% to USD141,4 billion. Meanwhile, the position
of the public sector's foreign debt grew by 1.9% to USD127,9 billion. When
compared with the previous month, the private sector external debt grew only
0.6%, while the public sector external debt increased by 1.6%.
Long-term foreign debt in January 2014 grew 7.1%,
higher than the growth in December 2013 by 4.1%. Meanwhile, short-term external
debt grew 7.0%, slightly slower than the previous month's growth of 7.1%. In
Januari2014, long-term foreign debt stood at USD222,8 billion, reaching 82.7%
of total external debt. Of this amount, foreign debt, long-term public sector
reached USD121,5 billion (95.0% of total public sector external debt), while
long-term foreign debt of the private sector USD101,3 billion (71.7% of the
total private foreign debt).
For private foreign debt, growth occurs on the
foreign debt of the financial sector and the transport and communications
sector. The private sector's foreign debt is mainly focused on five sectors of
the economy, namely the financial sector (26.5% of total private foreign debt),
manufacturing (20.4%), mining and quarrying (18.1% ), electricity, gas and
water (11.6%), and transport and communications (7.6%). Of the five sectors,
two sectors, financial sector and transport and communications sector recorded
an increase of growth in January 2014 respectively by 11.1% and 5.8%, from the
previous month at 5.7% and 4.4% meantime , the growth of foreign debt mining
and quarrying sector and the manufacturing sector grew by 20.4% and 11.7%,
slower than the 26.1% and 12.1% in the previous month
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