Trade Balance Indonesia: Import of Food Products Up, Capital Goods Down
In terms of trade, imports into Indonesia in Q1-2016 were dominated by food and beverage products. In fact, Indonesia's Statistics Agency (BPS) detected a staggering jump in food and beverage imports: imports of primary food and beverage items rose 32 percent (y/y) to USD $364 million in Q1-2016, while imports of processed food items surged 75 percent (y/y) to USD $886 million over the same period. This major jump cannot be explained by a massive increase in Indonesians' purchasing power or a sudden rapidly expanding (as well as hungry) population.
Mohammad Faisal, Research Director at Center of Reform on Economics (CORE) Indonesia, thinks this sudden jump is due to the existence of a supply-demand gap in Indonesia. "It would make more sense if imports of food products decline amid ongoing sluggish economic conditions and softening domestic demand. However, we now see the contrary. An explanation could be the presence of a rather big supply-demand gap," he says. This is a concern because it shows that Indonesia is not self-sufficient in food. Another sensitive example is the fact that Indonesia still has difficulty to reach self-sufficiency in rice, the most popular staple food crop in Indonesia, Southeast Asia's largest economy and home to 255 million people.
The sharp rise in food and beverage imports into Indonesia is remarkably considering that - overall - imports are on the decline on a year-on-year basis. According to the latest data from BPS, imports into Indonesia were down 10.4 percent (y/y) to USD $11.3 billion in March 2016 (from the same month one year earlier), implying slowing domestic demand. Meanwhile, Indonesia's exports fell 13.5 percent (y/y) to USD $11.79 billion, implying softening global demand.
Volume-wise, however, imports into Indonesia rose 10.8 percent (y/y) in the first quarter of 2016. This rise was primarily supported by growth in imports of consumer products (specifically food items). The rise occurred despite the average rupiah exchange rate being weaker in Q1-2016 compared to the same quarter one year earlier (in theory a weaker exchange rate boosts exports and curtails imports). Faisal added that primary needs such as demand for food is inelastic [meaning that the impact of price changes is small] and therefore the Indonesian population will continue to consume food products and therefore a stronger or weaker rupiah does not impact too much. However, given the supply-demand gap regarding food items Faisal said it is important that the government will implement strategies that boost the domestic food supply side.
It is a common phenomenon to see rising imports of food products ahead of the Islamic fasting month (Ramadan) and Idul Fitri celebrations in the June-July period because these celebrations always trigger increasing consumption (for example higher spending on food, clothes, and bags), accompanied by a spike in inflation. However, it is highly unlikely that the rising imports of food products in Q1-2016 are related to these Islamic celebrations because it is still too early. More likely, traders and businesses will import food items for the celebrations in April-May.
Another concern is that BPS detected lower imports of capital goods (goods that are used to produce other goods) in Indonesia. According to data from BPS, imports of capital goods fell 18.2 percent (y/y) to USD $5.3 billion in Q1-2016. This is a concern because it indicates that the private sector in Indonesia is not engaged in business expansion. It could also indicate that (foreign) investment is bleak.