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Govt calls trade deficit anomaly, moves to limit imports

The government is confident on the swelling trade deficit in July, calling it an anomaly that was the result of idling export and import activity from the month before

Rachmadea Aisyah (The Jakarta Post)
Jakarta
Thu, August 16, 2018

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Govt calls trade deficit anomaly, moves to limit imports

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he government is confident on the swelling trade deficit in July, calling it an anomaly that was the result of idling export and import activity from the month before.

Coordinating Economic Minister Darmin Nasution said the seemingly high increase in imports was because of a 36 percent drop in imports in June.

“The size of the deficit could be perceived negatively, but we have to look closer and see that there was actually a drop in imports [that preceded the import hike in July],” Darmin told reporters at a press conference with the Indonesian Chamber of Commerce and Industry on Wednesday evening.

Finance Minister Sri Mulyani Indrawati also called the trade deficit an anomaly, saying it was because of a long pause in export-import activity during Idul Fitri in June.

“Imports declined during Idul Fitri, but was then compensated for in July,” Sri Mulyani said at the Office of the Coordinating Economic Minister on Wednesday.

The Central Statistics Agency (BPS) reported that July’s trade deficit stood at US$2.03 billion, the highest deficit recorded since July 2013, as increases in exports did not balance out imports.

Overall, imports increased 62.17 percent from June to $18.27 billion, representing 31.56 percent growth year-on-year (yoy). Oil and gas imports went up 22.2 percent to $2.61 billion month-to-month (mtm), followed by non-oil and gas at $15.66 billion, up 71.5 percent mtm.

High imports of oil and gas, consumer goods and raw materials dragged the trade deficit to the $2 billion mark, continuing the slump of this year’s trade balance when surpluses only occurred in March and June.

Meanwhile, exports in July increased 25.19 percent from June and 19.33 percent yoy at $16.24 billion, helped by non-oil and gas exports, which increased 31.18 percent to $14.81 billion.

Darmin said if the trade balance calculations excluded June, when the 11 day Idul Fitri holiday had halted production, the increase in imports between May and July would have been at the 3.5 percent mark.

The swelling trade deficit comes at a time when the government is struggling with a depreciating rupiah, capital outflows in the stock market and an increasing current account deficit.

A similar situation could also be found in 2013 when the July trade deficit hit $2.33 billion, with the BPS citing weak exports that could not compare with imports that only increased 11.4 percent mtm.

Following the issues, the government has prepared several measures, including reducing oil and gas imports, which have been highlighted as Darmin confirmed that the government would begin implementing requirements on the usage of B20 biofuel on Sept. 1, with a presidential regulation on the matter to be issued soon. The policy is expected to save the country $5.9 billion a year from imports.

Furthermore, Deputy Energy and Mineral Resources Minister Arcandra Tahar said the ministry had agreed to increase the export quota for coal by 25 million tons, estimating that it would add $2.5 billion to annual oil and gas exports, relaxing the domestic market obligation for coal miners.

On Tuesday, the Finance Ministry’s undersecretary for fiscal policy Suahasil Nazara said import reduction measures for consumer goods were under discussion and that the ministry would issue a regulation on the matter.

Consumer goods played a huge part in July’s import volume as they rose higher than overall imports to $1.72 billion, up 70.5 percent mtm.

However, BPS head Suhariyanto stated that raw and auxiliary material imports remained the majority of this year’s imports at almost 75 percent, indicating changes in manufacturing and economic growth.

Bahana Sekuritas economist Satria Sambijantoro said in a statement issued Wednesday that the trade deficit was far higher than the market’s estimate of $625 million. He said policy commitment to rein in imports should be implemented sooner as markets would react quickly to condemn the government if it was too slow in fulfilling its promises.

Commenting on the government’s import brake plans, Andrew Harwood, research director at natural resources consulting firm Wood Mackenzie, said freezing new investment in supply or placing import restrictions could lead to declining domestic supply, which was the opposite of the government’s intention. He said the policy would exacerbate the increase in crude imports, particularly as crude prices are expected to remain buoyant in the medium term.

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