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Indonesia looks to boost exports to South America
Indonesia seeks to promote economic cooperation with South American countries to increase its exports amid the global economic slowdown and the escalation of the United States-China trade war
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span>Indonesia seeks to promote economic cooperation with South American countries to increase its exports amid the global economic slowdown and the escalation of the United States-China trade war.
Trade Minister Enggartiasto “Enggar” Lukita said more efforts would be made to penetrate untapped markets in a number of South American countries, such as Argentina and Chile. He said he had spoken with senior trade officials in the region during a recent visit to Argentina to explore the possibility of establishing new cooperation frameworks.
“We have to admit that the global market is down, so the key is how we can open new markets that lack [global] attention,” Enggar told reporters on Monday.
For instance, Indonesia and Argentina had agreed in principle to establish a special task force to formulate "agreeable" export tariffs, he said.
Enggar said that, during a recent meeting with Argentine Foreign Affairs and Worship Minister Jorge Marcelo Faurie, he explained that the future framework would be a business-to-business rather than a government-to-government cooperation, which usually required a lengthy process. The government, he added, would only act as a facilitator of trade.
He also expressed the hope that Indonesia and Argentina could later agree to a Comprehensive Economic Partnership (CEPA), but that “simpler” agreements were needed beforehand.
“The trade balance between Indonesia and Argentina is currently around [US]$2 billion, but Indonesia still has a deficit. Thus, this partnership also aims to improve Indonesia’s exports to Argentina,” he told last week.
In the meantime, he said that traders could take advantage of the Indonesia-Chile CEPA signed two years ago, which he claimed has eased trade between the two countries.
Chile is the first South American country that has a free trade agreement with Indonesia.
During his South America visit on May 13 to 18, Enggar also met with business leaders and organizations like the Mercosur ASEAN Chamber of Commerce (MACC), bi-regional Chamber of Commerce that identifies, develops and assists ASEAN members in trade and business.
Expanding Indonesian trade in South America countries is part of the ministry’s strategy to expand to nontraditional markets amid the escalating US-China trade war that has slowed worldwide exports.
The global economic slowdown has been blamed for the country’s record deficit of $2.5 billion in April, the largest monthly deficit recorded since 2013.
Enggar also said that he wanted Indonesia to catch up to neighboring ASEAN countries, which he said were
“aggressively” pursuing the South American market, citing Chile’s CEPA with Malaysia, Thailand and Vietnam.
But Center of Reform on Economics (CORE) Indonesia research director Piter Abdullah painted a bleak picture of the strategy, saying that it had little chance of counterbalancing the country’s deficit because South America was a relatively small market.
For example, he said, trade between Chile and Indonesia in 2018 was worth around $274.1 million, a far cry from the $39.16 billion Indonesia earned in first-quarter trade with China, one of the country’s traditional export destinations.
If the government persisted on continuing with the strategy, Piter advised that decision-makers push the manufacturing industry to add value to raw commodities for a better competitive advantage. He cautioned that pursuing the strategy would be costly, as this would require augmenting productivity for exports and shipping goods over a vast distance, especially with exporters likely to use foreign vessels and insurance.
He said he would much rather see the government reduce high imports by improving local businesses. For example, the textile and apparel manufacturing sector was among the country’s strong selling points, yet it had remained underdeveloped because the sector had failed to reach the 10-percent-growth threshold in recent years.
According to Statistics Indonesia (BPS), total imports in April increased 12.25 percent month-to-month (mtm) to $12.6 billion. The BPS data also showed that non-oil and gas imports alone increased 7.82 percent mtm to $12.86 billion, driven by a 24.1 percent mtm increase in imported consumer goods, such as frozen meat, boneless bovine meat, apples, pears and running shoes.
“By suppressing the pace of imports, we will fix our deficit problem while increasing our revenue and labor absorption at the same time,” said Piter. “So the impact will be identical to expanding exports, but [it would] require less effort and funds.”
