Indonesia may have posted a third consecutive trade deficit in July, but Trade Minister Gita Wirjawan on Tuesday said he was confident the country would finish the year with a trade surplus.
The minister offered a three-pronged explanation for the improved performance: more stable commodity prices will help exports balance imports, value-added exports will improve, and trade promotion in new markets will start to bear fruit.
Indonesia’s trade balance narrowed to $0.2 billion in July after hitting a record $1.3 billion in June, as exports contracted due to low global demand and weak prices, while imports rose due to buoyant domestic consumption and investment.
Over the year’s first seven months, though, the country posted a surplus of $335 million, the Trade Ministry said in a statement on Tuesday. Indonesia posted a $16.2 billion trade surplus in the same period last year. “I think this year we can still avoid a trade deficit, as commodities prices will soon stabilize,” Gita said on Tuesday.
Palm oil climbed to the highest level in more than a week on Tuesday as traders speculate demand for the commodity will rise due to possible further monetary stimulus in the US, Bloomberg reported.
Palm oil and other commodities, such as coal and minerals, account for around 70 percent of Indonesia’s exports. In the first seven months of the year, Indonesia coal shipments contracted 19 percent from the same period last year, palm oil fell 8 percent, while palm kernel oil, shrimp, rubber, and minerals also fell, the Trade Ministry said in Tuesday’s statement.
“The other factor is that we are trying to ship more value-added exports,” Gita said. The Trade Ministry recorded a 13-fold jump in the country’s beverages exports and an almost eightfold jump in wheat-based food product exports over the January to July period. Indonesia’s exports of processed food rose 54 percent, automotive and automotive parts rose 39 percent, soap and cleaning agents rose 36 percent and vegetable oil rose 26 percent.
Gita said that Indonesia was also seeking new markets for its exports, such as countries in Latin America, the Middle East and Africa, while its traditional markets — the United States, Europe, China and Japan — struggle with sluggish economies. Export to the Ivory Coast, he said, jumped almost 400 percent to $71.9 million in the January to July period. “Exports to counties such as Libya, Mauritania, Pakistan, Yemen, Angola, Djibouti and Saudi Arabia also increased very rapidly,” Gita said.
The country’s imports in the year’s first seven months were dominated by raw materials and capital goods.
Still, economists believe the country will struggle to move to a trade surplus this year as sluggish growth in the US and recession in Europe hurts global demand while domestic demand remains strong. “It would be very had to manage it back to zero because Indonesia’s main trading partners are reducing their own growth rate, which necessarily depresses cross-border trade,” Robert F. Bruner, dean of the Darden School of Business at the University of Virginia said on Tuesday.
Bruner said that Indonesia should limit its domestic demand for imports by raising its benchmark interest rate. Bank Indonesia, the central bank, has kept its interest rate at a record low 5.75 percent for seven consecutive months.
Trade Minister Gita Wirjawan, below, is confident Indonesian international container terminals, like this one, above, in Belawan, North Sumatra, will soon switch from large numbers of imports to exports. Reuters Photo/Tarmizy Harva