Indonesian Trade Deputy Minister Bayu Krisnamurthi announced that Indonesian furniture, rubber and garment businesses have secured trade contracts worth USD $11.3 million with their counterparts in the USA and Canada. Most of these contracts (roughly USD 10.3 million) were sealed by US importers. Krisnamurthi stated that these deals show that international businesses have trust in Indonesian products. Moreover, the deals will have a positive impact on Indonesia’s troubled trade balance.
Indonesia - Southeast Asia’s largest economy - has had to cope with a wide current account deficit since late 2011. This deficit is particularly caused by expensive oil imports to meet domestic fuel demand (and therefore president-elect Joko Widodo wants to reduce massive government spending on energy subsidies). As this deficit signals that Indonesia relies on foreign capital inflows, it makes the country vulnerable in the eyes of global investors. As such, in times of global shocks (for example looming higher US interest rates), Indonesia can become one of the emerging economies that will be hit hardest as capital outflows may be higher than in other emerging economies. In the second quarter of 2014 Indonesia’s current-account deficit was USD $9.1 billion, or 4.27 percent of gross domestic product (GDP). Generally, a deficit below the three percent of GDP mark is considered sustainable.
Based on data published by Indonesia’s Trade Ministry, 35.7 percent of Indonesia’s total furniture export (with a value of USD $372 million) was shipped to the USA during the period January-July 2014. Compared to the same period in 2013, Indonesian furniture exports to the USA grew 7.23 percent year-on-year. Other important export markets for Indonesian furniture are Japan, UK, the Netherlands, and Germany. In 2013, Indonesia’s total furniture export value was USD $1.75 billion.
Also regarding rubber and garment products the USA constitutes the largest importer of Indonesian products. About 23 percent of Indonesia’s total rubber exports are exported to the USA. Remaining rubber exports are mainly shipped to China, Japan, South Korea and India. In the first seven months of 2014 Indonesian rubber exports have reached USD $4.44 billion.
Regarding garment products, Indonesia ships 50.1 percent of total exports to the USA. Indonesia’s total garment exports in the first seven months of this year were worth USD $4.65 billion.