Trade data shows ‘structural problem’ in nation’s economy
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Indonesia booked a trade deficit for a third consecutive month in June on higher domestic demand for capital goods and raw materials, the Central Statistics Agency (BPS) reports.
The deficit — which at US$1.33 billion was the widest in five years, according to the BPS — indicated that the nation’s economy was expanding beyond its production capacity and would likely adversely affect overall economic growth by year end, analysts said.
Exports reached $15.36 billion in June, down 16.4 percent compared to the same period last year, while imports stood at $16.69 billion, up 10.71 percent.
The total value of exports for the first half of 2012 stood at $96.88 billion, down 1.76 percent from last year, while imports were up 15.35 percent to $96.41 billion.
Aviliani, an economist at the Institute for Economics and Financial Development and an independent commissioner for Bank BRI, said that imports have been driven by business expansion and new investments, which triggered increased demand for capital goods, raw materials and intermediary goods.
However, Aviliani said, the expansions were predominantly aimed at producing goods for domestic consumption, not export.
Contacted separately, Latif Adam of the Indonesian Institute of Sciences (LIPI), said the heavy reliance of Indonesian manufacturers on imported raw materials was a direct result of underdeveloped upstream industries.
The government had to overcome “structural problems” and eliminate basic impediments in infrastructure and bureaucracy to attract more investment in strategic sectors, particularly steel and chemical production, according to Latif.
He said that the impediments made Indonesia, the largest market in Southeast Asia, less attractive. “Investors have chosen other ASEAN nations, such as Malaysia, Thailand and Vietnam, as the location for upstream industries and machinery.”
Bank Danamon chief economist Anton Gunawan said declining global commodity prices contributed to the deficit, calling the BPS’ latest trade report “worse than the consensus” opinion.
Anton said the value of exports to most of the nation’s principal export destinations declined in June, with the largest decrease showing in its trade with China, which was down 15 percent from May.
“The main export commodities have seen a sharp decline, particularly in the mining sector. Coal was down 13.4 percent month-to-month while raw minerals reported a bigger decline of 54.6 percent.”
The introduction of a 20 percent export tax on metal ore in May also played a big part in the slump of the raw mineral exports, Anton said.
“It is then up to the government to cover the loss in the raw minerals exports by reviving exports of the processed good,” he said.
Robert Prior-Wandesforde, director of Asian economics at Credit Suisse, told Bloomberg that the nation’s rapidly rising trade deficit was symptomatic of an economy growing beyond its productive potential.
“Indonesia’s rapidly deteriorating external accounts doesn’t bode well for the rupiah, and our foreign exchange analysts expect it to continue underperforming other Asian currencies in the months ahead,” he said.
Indonesia suffered a negative trade balance for the first time in almost two years in April, reporting a $641.1 million in deficit, which was followed by a $485.9 million deficit in May.
The rupiah fell 0.3 percent to 9,466 per US dollar as of 3:36 p.m. in Jakarta, its biggest drop since July 12, data recorded by Bloomberg shows.
Trade Minister Gita Wirjawan said in an emailed statement that it would be difficult for exports to rebound amid the current global economic crisis.
However, Gita said he was optimistic that the nation’s trade balance show a net surplus by year end.