South East Asia's largest economy was hit hard by the tapering panic that gripped markets last year, but Indonesia's finance minister told CNBC that the country's current account deficit would not be an issue this year.
Last year Indonesia hit the headlines as its stock market plunged 26 percent from late May to late August, as investors panicked amid expectations that Federal Reserve would soon taper its asset-purchase program. Countries with high current account deficits like Indonesia were hardest hit.
However, since then Indonesian policy makers have taken sizable steps to shore up their finances. The changes have paid off; in the more recent emerging market sell off Indonesia's currency and stock market held up relatively well. The rupiah is only 0.1 percent down on its level at the start of the year, in contrast to the Argentine peso, for example, which has plunged 21 percent against the greenback.
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"One of our problems was our current account deficit in the second quarter in 2013, and the only way you solve the problem is by tightening the fiscal and the monetary policy, and that's what we did," said Chatib Basri.
Adek Berry | AFP | Getty Images
Indonesia's current account deficit came in at a record 4.4 percent of gross domestic product (GDP) in the second quarter of last year, but fell to 3.8 percent of GDP in the third quarter. The central bank now expects it to moderate to 3.4 percent in 2014.
The improvement has been spurred by aggressive tightening by Bank Indonesia, which has raised interest rates by 175 basis points since June. In December, the economy logged a third straight monthly trade surplus, in a positive sign for the current account deficit.
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However, one potential headwind to the economy's improved finances could be last month's ban on mineral ore exports. Policy makers hope the ban will help boost profits from its mineral sector by forcing miners to process their ore domestically before exporting it.
As countries with current account deficits import more than they export, some analysts have said the ban could worsen the deficit as if exports are hurt as a result.
