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RI posts historic trade deficit
It seems that the trade war between the United States and China has hit Indonesia right where it hurts
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It seems that the trade war between the United States and China has hit Indonesia right where it hurts.
Throughout 2018, Indonesia recorded a whopping US$8.57 billion trade deficit, and experts are not expecting a lot of improvement in the country’s trade balance this year.
The 2018 trade deficit was the highest ever recorded by Statistics Indonesia (BPS), and ultimately the worst experienced by President Joko “Jokowi” Widodo’s administration since 2014.
BPS head Suhariyanto blamed the historic deficit on a slowdown in the US and China, Indonesia’s two main trading partners that made up over 25 percent of the country’s total export market.
China announced weaker-than-expected 2018 trade data on Monday and its economic slowdown is expected to deepen this year. Previously, American companies, spooked by a looming slowdown in China, revised down their targets.
Suhariyanto encouraged the government to diversify its products and markets but conceded that it may only get harder to do so in 2019 because of the continuing global economic slowdown.
In 2018, annual exports improved 6.65 percent year-on-year (yoy) to $180.06 billion, boosted by a 6.25 percent yoy non-oil and gas export increase. Still, the figure was below the Trade Ministry’s 7.5 percent forecast.
The manufacturing sector contributed 72 percent to Indonesia’s exports, followed by mining at 16.26 percent and the oil and gas sector at 9.67 percent.
However, the country was not able to balance out the 20.15 percent increase in imports to $188.6 billion, including a 19.71 percent rise in non-oil and gas imports and a 22.6 percent increase in oil and gas imports.
Raw and auxiliary materials made up 75 percent of imports in 2018, followed by capital and consumer goods at 15.88 percent and 9.11 percent, respectively.
While acknowledging that the trade deficit was caused by a surge in imports, Coordinating Economic Minister Darmin Nasution said the high import growth had also been driven by a busy industrial sector, therefore signaling positive economic activities.
He added that the swelling trade deficit had mainly been fueled by high oil-and-gas imports, a problem that cannot be solved in the short term. He further expressed hope that the 20 percent blended biodiesel (B20) policy could ease the pressure from oil imports.
According to Bank Central Asia (BCA) chief economist David Sumual, Indonesia might still record a high trade deficit in the coming months because of potentially weak commodity prices and the need to import raw
materials.
“We will still see high imports, considering we have Rp 400 trillion to splurge this year for raw materials, fuel and machinery to support infrastructure development,” David told The Jakarta Post on Tuesday, referring to Jokowi’s Rp 420 trillion ($29.7 billion) infrastructure budget for 2019.
He emphasized that while imports were practically impossible to suppress, exports should be pushed with the help of the imported materials to produce value-added export commodities.
“Therefore, we need to diversify products and, at the same time, diversify export destinations.”
He added that the government’s B20 policy might curb the import of crude oil and its derivative products, which reached $26.74 billion in 2018.
Data from the Institute for Development of Economics and Finance (Indef) shows that Indonesia saved $1.6 billion with the policy in 2018, $400 million short of the target.
Only 81.3 percent of the 4 million kiloliters of fatty acid methyl ester (FAME), a derivative of palm oil in the B20 mix, was used.
Indef economist Bhima Yudhistira Adhinegara said Indonesia’s use of B20 was far from ideal.
“The dependency on imported fuel increased as domestic production dwindled and the Brent crude oil price averaged at $70 per barrel,” Bhima told the Post.
He pointed out that a 20.15 percent increase in the import of raw materials was in part due to the government’s insistence on pushing infrastructure projects despite the widening deficit.
Bhima estimated that this year’s trade deficit might remain wide at between $6 billion and $7 billion, especially as Indonesia continues to rely on raw commodity exports and is slow in developing downstream
industries.
He urged the administration to speed up its effort to expand trade negotiations and exports, and resolve trade barriers against non-traditional destinations.
According to Bahana Sekuritas economist Satria Sambijantoro, the economic slowdown in China, Indonesia’s largest buyer of commodity-based products, had caused the latter’s grim export tally.
“The onus to fix the trade gap might lie with the government, especially as it was mostly caused by worrying developments in exports rather than in imports,” Satria wrote in a research note.
“We see an urgency for Indonesia to accelerate structural reforms in 2019, particularly on how to reduce its dependency on commodity exports and to diversify its export markets.” (aak)
