Stakeholders are worried the United States-China trade war will continue to take its toll on Indonesia after inflicting a huge blow to the country’s trade balance in 2018.
The US and China, two of Indonesia’s major trade partners, are still embroiled in a trade feud, despite the leaders of the two countries having agreed to a 90-day truce in early December.
Indonesian policymakers have flaunted their ability to weather uncertainty as a result of the trade war and monetary tightening in developed markets. However, they were shocked to realize the startling US$8.57 billion trade deficit in 2018, the highest since 1975.
As the trade war goes on and weakens the economy of China, which remains Indonesia’s largest trade partner, it led to a $20.85 billion deficit on Indonesia’s side as imports jumped 28.5 percent year-on-year (yoy), whereas exports only grew 15 percent yoy, Statistics Indonesia (BPS) data shows.
The fourth quarter of 2018 recorded a $6.68 billion deficit for Indonesia, more than 30 percent of the yearly figure.
“Indonesian exports to China will be hugely affected [by the trade war],” Centre for Strategic and International Studies (CSIS) economic department head Yose Rizal Damuri said recently.
Quoting trade statistics from the Organization for Economic Co-operation and Development (OECD), he pointed out that 10 percent of Indonesia’s exports to China had served as material for products that China would export to the US.
“This means that a 10 percent drop in China’s exports to the US […] would significantly disrupt Indonesia,” said Yose.
China’s exports to the US declined by 3.5 percent in December, while its imports from the US were down 35.8 percent for the month, Reuters reported.
In line with the decline, its December exports had unexpectedly fallen by 4.4 percent, the worst in two years, compared to 2017, with demand in most of its major markets weakening.
While Yose attributed oil imports as the actual major cause of Indonesia’s deficit, he said Indonesia had been too fixated on its traditional trade partners, which evidently included the Asian behemoth.
Indonesia’s exports to China had also been too focused on raw materials, he said, doubling the impact of the slowdown.
Yose urged Indonesia to attract more investment to develop its upstream manufacturing, taking an example of Vietnam, the textile and garment industry of which had grown by a whopping 600 percent in a decade, even though it had used capital from multinational companies to grow instead of domestic funds.
BPS head Suhariyanto noted that most commodities had seen a slowdown in exports to China at the end of last year, such as rubber, vegetable oils and jewelry.
“All surpluses Indonesia had with India, the United States and the Netherlands are dwindling compared to the year before, whereas Indonesia’s deficit with China had increased exponentially,” Suhariyanto said in a separate press briefing.
National Development Planning Agency (Bappenas) director for trade, investment and international economic cooperation, Yahya Rachmana Hidayat, said while it was unhealthy for Indonesia to be too dependent on China and the US, the problem Indonesia should address first was its lack of value-added exports.
Even though the government had been rigorously attempting to access new, non-traditional trade destinations, it would not divert Indonesia’s exports out of China and the US , Yahya said.
“Manufactured goods have indeed started to take over our raw materials in terms of exports, but the goods were still produced with minimal technology,” Yahya told The Jakarta Postrecently. “That leaves our exports below their potential, even to traditional countries and even without the trade war.”
He did not mention how far off Indonesia was from its export potential, but said the agency had started to compile data from various provinces to identify the main export commodities from each region as well as their destinations to intensify value-added exports. (waw)