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Rebalancing Indonesia’s economy amid the pandemic
This change in economic polarity, followed by the global financial crises of 2008, has put economic globalization under pressure and stimulated the trade war phenomenon.
Change Size
Southeast Asia 2018-2050 investment in generation (JP/Swi)
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he World Trade Organization's international trade statistics show that world merchandise dominance has been evolutionary, shifting from the United States to Asian countries. In 1948, the US share of world merchandise exports was 21.7 percent, while China and Japan had 0.9 percent and 0.4 percent, respectively. In 2015, after more than 65 years, the share of world merchandise exports held by China and Japan increased 14 and eight times, respectively, while the US share decreased by more than a half.
This change in economic polarity, followed by the global financial crises of 2008, has put economic globalization under pressure and stimulated the trade war phenomenon. Even more, the ongoing pandemic has added an extra burden to economic globalization. Globalization is now in hibernation mode as every country waits for its new normal while attempting to enhance its local economic role.
As COVID-19 rages, some Asian countries have shown a tendency toward economic recession, which is characterized by negative growth in two consecutive quarters. Japan displayed the likelihood in mid-May, followed by Singapore in mid-July and South Korea in the third week of July.
Economic contraction in these two East Asian economic giants and the hub of Southeast Asian trade and finance must affect the ASEAN economy. The three countries are significant sources of foreign direct investment (FDI) in Southeast Asia. Sooner or later Indonesia’s production networks and trade will be impacted.
Based on my calculation using the composite index model, Indonesia's trade and long-term investments are influenced by China, Japan, the US, India, Singapore and South Korea. Unlike China, the major economic partners are now struggling to escape from recession. This will inevitably affect Indonesia's economic achievement in 2020, particularly in the sectors that foreign investors play a dominant role in, like electronics, automotive, footwear and clothing. As these sectors contribute much to Indonesia's exports, Indonesia's trade will be at risk.
The latest Statistics Indonesia (BPS) export and import data in July shows that Indonesia's economy relies on its major trading partners in East Asia and ASEAN. The good news is, however, that Indonesian imports and exports still depend on a dense production network of electrical machinery, equipment and spare parts, and iron and steel, which indicates Indonesia's increasing linkage to the Asian production network.
ASEAN economic architecture is somewhat similar to a doughnut shape with no central power, as none of the member states is big in terms of economic size and high in terms of income level like those in Europe and North America. In ASEAN, the biggest economic member in terms of size, Indonesia is not yet a high-income country, whereas the wealthiest member state, Singapore, is not big in terms of size.
