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Despite import controls trade deficit still problem
The trade deficit will remain one of the government’s pressing economic issues throughout the year as exports decline and despite the government’s measures to control imports
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The trade deficit will remain one of the government’s pressing economic issues throughout the year as exports decline and despite the government’s measures to control imports.
In January, Indonesia recorded a US$1.16 billion trade deficit as exports fell, mainly in electronic appliances and industrial machinery, while imports of oil and gas, as well as consumer and capital goods also decreased.
Statistics Indonesia (BPS) announced on Friday that exports decreased by 3.24 percent month-on-month (mom) and 4.7 percent year-on-year (yoy) to $13.87 billion.
Meanwhile, imports went down by 2.19 percent mom and 1.83 percent yoy to $15.03 billion, BPS data show.
“The fluctuating prices of commodities and a general downturn in global [economic] growth has been affecting Indonesia’s trade balance,” said BPS head Suhariyanto, referring to the declining prices of coal, copper, aluminum and zinc.
The trade deficit, which was wider than analyst forecasts, led to declines in Indonesia’s bond, equity and currency markets on Friday. The Jakarta Composite Index (JCI) — the main gauge of the Indonesia Stock Exchange (IDX) — closed at 6,389, down 0.48 percent from the previous trading day.
In addition, the rupiah was quoted at 14,116 per US dollar, down from 14,093 per US dollar the day before.
To improve the trade balance, Coordinating Economic Minister Darmin Nasution said the government would strive to boost exports of other commodities, especially manufactured goods, such as automotive and electronic appliances.
Among the new measures is Customs and Excise Director General Regulation No. 1/2019, which has simplified the procedure for carmakers to export their products by allowing them to provide export notification documents after their products have entered the customs areas rather than prior to entry as was the case previously.
The government has made several efforts to reduce the trade deficit, including by imposing a higher tax on 1,147 imported consumer goods that have been deemed nonessential or which have domestic equivalents.
Darmin added that the mandatory 20 percent-blended biodiesel (B20) fuel policy might have succeeded in reducing oil and gas imports.
Meanwhile, Mohammad Faisal, director of Center of Reform on Economics (CORE) Indonesia, suggested that the government exercise more control over imports to reduce the trade deficit.
“For example, although it is important to boost infrastructure development, the government should make sure the volume of steel imported is in accordance with the country’s needs,” he said.
The government should also solve the fundamental problem in Indonesia by reforming manufacturing industry to ensure local products were competitive for export, he said.
Bhima Yudhistira, an economist at the Institute for Development of Economics and Finance (Indef), said the government had to continue increasing non-oil exports, especially to nontraditional countries.
“The government should hold more trade negotiations to increase exports,” he said. “Coffee and chocolate are among the potential commodities that Indonesia can export to nontraditional countries.”
Analysts predict that 2019 will still be a challenging year for emerging markets, including Indonesia, because of the global uncertainty caused by the trade war between the United States and China that shows little sign of ending soon.
Bahana Sekuritas economist Satria Sambijantoro said Indonesia might not be “totally immune” to the ongoing US-China trade wars.
China remained Indonesia’s top export destination last month with total exports worth $1.71 billion, accounting for 13.52 percent of Indonesia’s overall exports, followed by the US and Japan at $1.51 billion and $1.2 billion, respectively.
China is also Indonesia’s top import source, even though the mom transaction value dropped by $296.7 million to $4.14 billion, followed by Japan and Thailand at $1.37 billion and $0.73 billion, respectively.
“From the perspective of global capital flows, we are concerned that the failure of US and China to settle their trade talks this month might expose emerging market assets to a ‘trade tantrum’ shock that could spawn a risk-averse mood and tighten liquidity in the global economy,” Satria said in a statement.
