INDONESIA MAY SUFFER TRADE DEFISIT AS A RESULT OF GLOBAL CRISIS

INDONESIAN COMMERCIAL NEWSLETTER

February 2009

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INDONESIA MAY SUFFER TRADE DEFISIT AS A RESULT OF GLOBAL CRISIS

The past three months saw the country's exports shrinking month-on-month. In November, exports declined 11.09% from the previous month. And the trend continued in December when imports fell again 9.57%. A sharper fall of 17.7% followed in January - to US$7,153.3 million from US$8,691.8 million in Dec. 2008. Year-on-year, the exports in January sank 36.08%.

The declining trend marked the impact of the global financial woes in the country, which has not fully recovered from the traumatic monetary crisis in 1997/1998.

The present crisis is more devastating as it hits the sector which has been one of the driving motors for the country's economic growth. Continued decline in exports is feared to inflict more serious damage to the country's economy.

Development of Indonesian Exports

The falling prices of export commodities result in smaller export earning. In January, 2009, exports of oil and gas dived 23.85% to US$947.1 million from US$1,243.7 million in December 2008 and exports of commodities other than oil and gas sank 16.67% to US$6,206.2 million from US$7,448.1 million in December 2008

Exports of crude oil fell 18.05% to US$373.2 million and exports of oil products dropped 26.31% to US$71.4 million and gas exports sank 27.32 % to US$502.5 million .

The decline in export value followed a sharp fall in the exports of crude oil, oil products and gas respectively down by 23.37%, 33.44% and 15.31% as the price of Indonesian crude rose from US$38.45 per barrel in December, 2008 to US$41.89 per barrel in January, 2009.

The sharpest fall in the exports of commodities other than oil and gas in January, 2009 was recorded for mineral fuels down by US$191.9 million and the highest increase was recorded in the exports of tin by US$47.5 million.

In January, 2009, exports of agricultural products fell 8.24% year-on-year; exports of manufactured products dropped 35.52% and exports of mining products down 1.24%.

Declines were also recorded in the exports of electrical machines and equipment (HS 85) down US$168.7 million; mechanical instruments (HS 84) down by US$88.1 million; rubber and rubber products (HS 40) by US$76.2 million; and animal and vegetable fat/oil (HS 15) down by US$68.6 million.

Increases were also recorded in the exports of commodities other than tin (HS80) including in the exports of iron and steel (HS 72) up by US$38 million ; copper (HS 74) up by US$29.5 million; ornament/jewelry (HS 71) by US$13.9 million , and paper/carton (HS 48) by US$7.1 million.

The commodities in the 10 HS groups accounted for 51.89% of the total value of exports of non oil/gas commodities in January, 2009. The export value of the 10 group of commodities fell 35.31% from the same month in 2008.

Japan is the largest market for the country's exports of non-oil/gas commodities. In January, 2009, Japan accounted for 12.7% of the country's exports of non-oil/gas commodities, followed by the United States, accounting for 12.44% and Singapore for 9.58%.

Exports of non-oil/gas commodities to Japan in January, 2009 were valued at US$788 million, to the United States valued at US$772.3 million to Singapore US$594.5 million. The three accounted for 34.72%. Exports to the 27- country European Union were valued at US$1.03 billion.

Declines were recorded in the country's exports of non-oil/gas commodities to almost all countries of destination in January, 2009 compared with exports of December, 2008 . Exports to Japan fell US$219.3 million ; to Taiwan US$137.6 million ; the United States US$134.7 million; Singapore US$112.2 million; South Korea US$110 million; Malaysia US$74.4 million; Thailand US$19.4 million; Australia US$16.7 million; France US$11.9 million; Germany US$10.1 million; and Britain US$7.4 million.

Increase was recorded only in the exports to China, up US$1 million. Exports to the EU totaled US$1,026.8 million in January down. Altogether exports to the 12 main destinations fell 18.23%.

Manufactured goods accounted for 68.6% of the total exports in January, 2009; agricultural products accounted for only 4.09% , mining products and other commodities for 14.07%. Oil and gas accounted for 13.24%..

Developments of Imports

Meanwhile, exports also declined . In January, 2009, the country's imports shrank US$1,357.3 million (17.63%) to US$6,342.6 million including oil and gas imports valued at US$1,043.4 million or an increase of US$60.1 million (6.11%) and non-oil/gas commodities valued at US$5,299.2 million or down US$1,417.4 million (21.10%) from December, 2008. Imports from bonded zones were valued at US$1,172.4 million and from outside bonded zones valued at US$5,170.2 million respectively contributing 18.48% and 81.52% to total imports. .

In January 2009, mechanical instruments accounted for the largest part or 23.74% (US$1.26 billion) of the country's total imports of non-oil/gas commodities. The largest supplier of non-oil/gas commodities was China from which imports were valued at US$1.03 billion (19.47%), followed by Japan US$0.76 billion (14.37%) and Singapore US$0.66 billion (12.39%). Imports from other ASEAN countries made up 22.90% and from the EU 10.80%.

Imports of consumer goods and capital goods grew in portion from 6.75% to 7.54% and from 16.71% to 20.95% in January, 2009 year-on-year. Imports of basic materials fell in portion from 76.54% to 71.51%.

Mechanical instruments accounted for the largest portion of 23.74% to the country's total imports of non-oil/gas in January 2009, followed by imports of electrical machines and equipment accounting for 14.05%, iron and steel for 5.73%, iron and steel products for 5.14%, motor vehciles and parts 4.16%, organic chemicals 3.87%, and plastics and plastic goods 3.31%, ccereals 2.49%, ships , boats and floating structure 2.24%, and cotton 1.91%.

Indonesia's imports of non-oil/gas by countries of origin

The country's imports of non-oil/gas commodities in January 2009 were valued at US$5,299.2 million down US$1,417.4 million (21.10%) from December, 2008. Other ASEAN countries accounted for 22.90% of the imports and the EU for 10.80% .

The largest supplier of non-oil/gas commodities was China from which imports were valued at US$1.03 billion (19.47%), followed by Japan US$0.76 billion (14.37%) and Singapore US$0.66 billion (12.39%), the United States US$408.9 million (7.72%), Thailand US$291.7 million (5.50%), Australia US$249.5 million (4.71%), South Korea US$235 million (4.43%), Malaysia US$213.7 million (4.03%), Germany US$151.1 million (2.85%), Taiwan US$149.9 million (2.83%), France US$60.2 million (1.14%), and Britain US$42.7 million (0.81%). The 12 countries accounted for 80.24% of Indonesia's imports of non-oil/gas commodities in January, 2009.

Deficit feared in trade balance in 2009

So far Indonesia has been favored with surplus in its international trade. There has been deficit in some months but has always been offset with large suplus in other months of the same year that annual trade has always been marked with substantial surplus . In several consecutive months since the global financial crisis struck deficit has been recorded that it is feared this year the country will have its first trade deficit in many years.

There are causes for such concern as exports are expected to be sluggish in 2009.

Imports also are expected to decline but not as fast as exports as cheap products from other countries are feared to continue to gain stronger market foothold in the country. So far increase in the imports of basic materials and capital goods has contributed to pushing up exports of manufactured goods. However, imports of industrial basic matwrials and capital goods have tended to decline in proportion.

There are growing concerns that Indonesia will be a marketing target for major exporting countries after failing to dispose of their goods in crisis hit traditional markets such as the United States, Japan and Europe.

So far the government has not found an effective measure to protect the domestic industries without contravening the rule of the World Trade Organization (WTO). The fiscal stimulus in the form of import duty cuts have not proved effective enough in stamping out illegal imports.

The government has to seriously address the problem in the country's foreign trade. It needs to find the right panacea against the economic ills to prevent further decline of exports . The government may need to consider call for cut in costs burdening exporters and firmer measures to eradicate illegal levies at ports and help expanding export market to non traditional destinations. Supporting infrastructure should be provided to facilitate exports . Without concrete measure the country may see deficit in its foreign trade for the first time this year.