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Indonesia in doubt over Latin American markets amid unrest
Latin America is becoming less of a potential market and more like a cautionary tale, as businesses wait out the political upheaval and President Joko “Jokowi” Widodo warns the nation's security authorities not to fall into the same trap as those in countries like Bolivia and Chile
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span>Latin America is becoming less of a potential market and more like a cautionary tale, as businesses wait out the political upheaval and President Joko “Jokowi” Widodo warns the nation's security authorities not to fall into the same trap as those in countries like Bolivia and Chile.
The region has been rocked by political turmoil, with people staging protests against their governments, most recently in Bolivia, whose president Evo Morales was forced to resign after weeks of street protests over his disputed reelection for an unconstitutional fourth term. Different waves of protests have also erupted in Paraguay, Peru and Ecuador, as well as Chile — the only country that currently has potential to become Indonesia’s trade hub in the region.
Amid political uncertainties in Latin America, Indonesian businesses and exporters have been observing and studying the markets in the region, during which they would naturally look for the most stable markets with a minimum level of risk, said Indonesian Chamber of Commerce and Industry (Kadin) vice chairwoman for international relations, Shinta Kamdani.
“Our attention to politically unstable countries is also not too much, except if the market is as big as Brazil,” Shinta told The Jakarta Post on Tuesday.
In a meeting with local leaders and security personnel on Wednesday, Jokowi took the examples of mass protests around the world, including in Hong Kong, Chile and Bolivia, to illustrate the danger of unmanaged public discontent.
“[Mass protest] also happened in Chile because the public transportation fares were increased by 4 percent. The APEC Summit that should’ve been held this month was canceled [due to the unrest]. So be careful of discontent like this,” Jokowi told the meeting in Bogor, West Java.
In recent years, Jokowi has been seeking to expand Indonesia’s trade and investment portfolio in nontraditional markets, including in Latin America, the Caribbean and Africa.
Yet, in a limited Cabinet meeting earlier this week, Jokowi did not specifically mention Latin America, but ordered his Cabinet members to complete trade negotiations and increase exports to nontraditional markets “particularly in Africa, South Asia and the Indo-Pacific regions”.
Shinta said South America was actually quite promising because of its market size and purchasing power, with some countries having higher gross domestic product (GDP) per capita than Indonesia and only a handful of South American countries having strong industrial and manufacturing bases.
South America and the Caribbean have great economic potential with a population of about 630 million people and a total GDP of US$5.78 trillion last year. Despite the potential, Indonesia’s trade ties with South America and the Caribbean are relatively small, valued at $7.59 billion or just 0.35 percent of the region’s total trade with the world, according to Foreign Ministry data.
“So countries in that region are actually very likely to become a new market for Indonesian exports, especially manufactured products,” she said. “It's just that the obstacle to take advantage of this market opportunity is still too large because the geographical distance is very big and the logistics costs are high. So it is difficult to make our products competitive.”
Indonesian businesses were also facing problems in getting market intelligence for maximum market penetration in Latin America, especially in taking market share and creating a positive trade balance, she said.
Because of these problems, she said, the best strategy for penetrating the South American markets was to create regional trade hubs in one or two South American countries that were considered to be stable and strategic, such as Chile — which currently is the only Latin American country that has a comprehensive economic partnership agreement (CEPA) with Indonesia.
“We can do the rest of the market penetration into other South American countries through Chile so that our trade costs are more efficient and we can be more competitive. With an approach like this, as long as the political-economic stability of our hub country, in this case, Chile, is still stable, we need not worry too much,” she said.
Chile has experienced massive protests in the last few weeks. On Tuesday, violent protests broke out in Santiago as the country's currency dropped to a historic low.
The Foreign Ministry had just held the Indonesia-Latin America and Caribbean (INA-LAC) Business Forum last month and it is currently planning to send a trade mission to the region next year.
“It was originally planned to be held together with the APEC Summit, but it seems to be impossible now [since the summit was canceled],” the Foreign Ministry’s acting director general for American and European affairs, Teuku Faizasyah, told the Post.
Nevertheless, Shinta said, Indonesian businesspeople were still hoping that the government could provide updates about Latin America and market intelligence that can be used to explore the market gaps.
