Fears over the impact of the United States financial crisis have increased this week amongst Indonesian policy makers and business players. The US$700 billion bailout approval from the U.S. House of Representatives has not resulted in positive market sentiments because players do not yet believe these measures will end the crisis.

The one million dollar question now coming our way is how badly the crisis is going to affect the Indonesian balance of trade. The slowing down of the U.S. economy in the aftermath of the sub-prime mortgage crisis has been predicted since last year.

A recent survey of CEOs in the U.S. conducted by Duke University concluded that 54 percent now believe that recovery will not start until late 2009.

Furthermore, the U.S. economic slowdown is likely to affect Indonesia's export performance since the USA is one of the biggest importers of Indonesian exports. The most recent data from BPS shows the United States takes 11.58 percent of all Indonesian exports, making it the second biggest national export destination after Japan.

This makes explicit the importance of the U.S. market for Indonesian export performance.

If we take a look at the role of the U.S. market by comparing with Indonesian exports to ASEAN countries, data from January to August only shows a 9.77 percent export share from Indonesia to Singapore. As we know, Singapore is the favorite export destination for ASEAN countries.

The U.S. market can also produce negative impacts on Indonesian export performance via a "domino effect". The U.S. financial crisis has led to financial problems in developed countries, like Japan and the EU member states.

The financial exposure of their large private institutions to U.S. private assets and securities has impacted negatively on their economies and growth prospects. They are also main destinations for Indonesian exports, aside from the United States.

Indonesian export markets shares of the EU, Japan and China are 13.92 percent, 12.50 percent and 7.58 percent respectively. These countries taken together absorb 45.58 percent of Indonesian exports!

So, will we still have export opportunities in the midst of global turmoil?

A fall in the performance of Indonesian exporters looks quite unavoidable in the next few months, but there are still strategies available to boost the value of our exports. The main idea is the diversification of export destinations.

This means shifting the balance of export destinations away from mainstreaming countries or traditional markets towards new promising countries or non-traditional markets.

The Middle East and East Asian regions are still promising. This is not a new idea, but until now Indonesia has not optimized these possibilities as the data shows that the big ten export destinations are still dominated by the "usual suspects".

This diversification strategy could work if the parallel industrial strategy works too, since Indonesia will face hard competition from China and India. The industrial strategy means strengthening competitiveness.

We should acknowledge that the threat from global economic turbulence may be a "blessing in disguise". It opens the eyes of policy makers to the reality that Indonesian manufacturing export performance is getting worse by the month.

Prior to mid 2008, Indonesia could enjoy windfall gains from increasing commodity prices. But, after that, we have to start once again to focus on the problems of competitiveness.

We cannot rely only on raw material and commodity exports to support our export performance. Let us take a look at the composition of our exports to the U.S. currently mainly driven by apparel and clothing (25 percent) and manufacturing (12.45 percent).

In these sectors, Indonesia must compete with China, India, and Vietnam. Unfortunately, the value of textile exports decreased between January and August. The export share of this sector is relatively low compared to others.

The competition in U.S. markets is likely to be harder in future as the market is shrinking alongside stronger competition.

In sum, in the short to medium run, export diversification is a possible strategy to maintain export growth.

But, in the longer run, export strategies have to be underpinned by industrial strategies, especially by increasing industrial competitiveness to help exporters get out of the trap arising from the financial crisis, through a more sustainable export strategy.

The writer is a researcher at PT Bahana Securities

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