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Facing that stubborn 2018 trade deficit
The country recorded in 2018 its largest trade deficit in history of US$8.57 billion, which has unnerved many who have perceived it as a sign of an ailing and troubled economy.
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Exports to China and the US, Indonesia’s main trading partners, which remained high. (Shutterstock/File)
T
he country recorded in 2018 its largest trade deficit in history of US$8.57 billion, which has unnerved many who have perceived it as a sign of an ailing and troubled economy. It also couldn’t have come at a worse time: with the election looming large, the deficit is easy prey for politicization.
We cannot shrug off the very real risk of a persistent trade deficit. One of these is the weakening rupiah, which recently plummeted to its worst level since the 1998 crisis. The trade deficit must also be balanced by external financial inflows such as by raising more foreign debts, that could undermine our long-term economic independence.
Notwithstanding the risks, we need to be clear that a trade deficit is not necessarily negative in and of itself. Burgeoning imports can support national production, particularly capital and intermediary goods. Moreover, the soaring deficit is also being exacerbated by the trade war, which has pushed China to dump its goods on other markets as they face more barriers to the United States.
Therefore, we should not just assess the deficit merely on its size. Regrettably, once we scratch beneath the surface, we will see that our trade deficit is a symptom of a more pernicious malady that warrants our concern. Our rising imports did not boost our industrial productivity. As our economy grew at 5.17 percent in the third quarter of 2018, the manufacturing industry only grew 4.3 percent — which means that instead of propelling our economy, our manufacturing dragged it down.
