Indonesia’s external trade improved in 2010, after declining in 2009 because of the global financial crisis. Both exports and imports have rebounded vigorously since 2009, with imports growing faster than exports.
The export rebound was mainly driven by strong demand for commodities, especially from Asia, while the rebound in imports was driven by the strong growth of raw material imports.
Export growth in 2011 may lower as economic growth in Indonesia’s trading partners is forecasted to be lower. But, import growth may be higher due to increases in domestic demand because of Indonesia’s own economic growth, forecasted to increase by 6.2 percent in 2011.
Strong growth in exports was achieved in 2010 by almost all export commodities, especially the five biggest exports, which were 45 percent of Indonesia’s non-oil exports. Numerous other items that
account for 40 percent of exports also contributed significantly, with growth at 30 percent.
China and India’s strong economic expansion have boosted Indonesia’s exports of coal and palm oil, while the revival of car production in the US and elsewhere increased the export of rubber, rubber products and base metals.
Even the export of electrical machinery and equipment — not commodity exports — grew a robust 30 percent as Indonesian manufacturers improved their capacity to supply parts to assembly plants in other countries.
In terms of countries of destination, there has been a marked shift in the destination of exports, from developed countries (the US, EU countries and Japan) to others.
The share of Indonesian exports to developed countries declined from 45 percent in 2004 to 30 percent in 2010. Because of its strong growth, Asia, especially ASEAN, China and India, is now receiving the bulk of Indonesian exports.
Until September of this year, Indonesian non-oil exports to Asia, excluding Japan, accounted for 46 percent of total non-oil exports. Exports to China jumped by 55 percent and exports to ASEAN countries rose by 33 percent.
India is emerging as a major market for Indonesian exports, likely to reach US$9 billion this year compared to only $2 billion in 2004. In 2009, when exports to most countries declined, exports to India rose 10 percent.
The outlook for Indonesian exports in 2011 depends on the growth outlook of its trading partners. According to the World Economic Outlook published by the IMF in October 2010, the advanced economies are projected to grow by 2.7 percent in 2010 and then decline to 2.2 percent in 2011. Recovery in the US continues to be weak, mainly due to the high rate of unemployment and sluggish personal spending.
Growth in Europe is also weak and uneven, with growth at 1.7 percent in 2010 and 1.5 percent in 2011. Unsustainable fiscal policies that have resulted in debt crises in several European countries pose a threat to Europe’s continuing growth. Japan’s economic prospects remain weak given lackluster domestic demand and lack of fiscal room to further boost the economy.
But the IMF said the probability of a sharp global slowdown, including stagnation and contraction, in advanced economies continues to be unlikely.
TBL Exports
The outlook in emerging economies, especially in Asia, is better. Emerging Asian economies are showing resilience and strong growth.
According to the IMF, growth in China and India in 2011 will be 9.6 percent and 8.4 percent respectively. The World Bank forecasted the growth of Indonesia’s major trading partners would decline from 6.5 percent in 2010 to 4.3 percent in 2011.
The trend of Indonesian exports mostly going to Asia’s emerging markets is likely to continue next year, underscoring the growing importance of the Asian market for Indonesian products. The ASEAN market will remain the most important market for Indonesian exports.
As Indonesia’s economy has further integrated with ASEAN economies, the value of Indonesian exports to ASEAN has doubled from $12.2 billion in 2004 to $25 billion this year. Exports to ASEAN are also the largest compared to other countries.
China, India and South Korea have been accelerating their imports from Indonesia in recent years, because of their high demand for mineral fuel. China and India will remain the most important market for Indonesian palm oil.
If the value of the dollar keeps declining because of loose monetary policies in the US, then prices for Indonesian commodities would strengthen.
This would partly offset the lower volume of trade that might result from slower growth in China and India.
However, Indonesian exports may face some risks next year. Exigencies from unpredictable weather could disrupt the production of agricultural and mining products. Pressures on the Indonesian government from environmental groups to impose a moratorium on deforestation would adversely affect the production of palm oil and timber.
But, the most serious risk would be the still unresolved currency and trade dispute among the G20 countries that could disrupt world trade.
The increasing impulse for protectionism in advanced countries could threaten Indonesian exports with barriers. Indonesian exporters and the government should be ready to face more anti-dumping charges from importing countries.
Imports have been growing more strongly than exports up to September this year, driven by robust increases in raw material imports. This conforms with data that shows the strong economic growth this year was mainly driven by private consumption. As private consumption would likely be sustained in 2011, the growth of imports would surpass the growth of exports, resulting in the shrinking of the Indonesian trade surplus.
As Indonesia always experiences deficits in its service transactions, current accounts would likely experience deficits. Indonesian accounts have been in surplus for the last 10 years, so the deficit next year
would mark a turning point, where a high level of economic growth needs to be supported and sustained by a large amount of imports.
According to the World Bank, Indonesia’s current account surplus would drop from $10.7 billion in 2009 to $1.8 billion in 2010, and to a deficit of $1.2 billion in 2011.
But the balance of payments would still be in surplus in 2011, because the current accounts deficit would be more than offset by a continuing surge in capital inflows that are still being attracted by strong economic fundamentals.
Appropriate monetary policies are required to manage these inflows. The government has yet to devise innovative policies so that more capital flows into real sectors and infrastructures, without which, it would be hard to sustain the current rate of economic growth.
The writer is an economist.
photo caption:
JP/Indra Harsaputra
Seeking protection: Employees of a micro enterprise in Surabaya produce student bags, amid the invasion of imported goods from China as a result of the ASEAN-China free trade agreement.
