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In July 2023 we saw a relatively modest trade surplus for Indonesia at USD $1.31 billion, down heavily from USD $3.45 billion in the previous month when it was the weak import performance that allowed Southeast Asia’s largest economy to enjoy a wide trade surplus.
Last month, we were bracing for the first (monthly) trade deficit of Indonesia since April 2020 amid declining exports (in line with normalizing global commodity prices and subdued global economic growth) and elevated imports. However, this trade deficit didn’t arrive.
On 15 May 2023 Indonesia’s Statistical Agency (BPS) released the latest trade data of Indonesia. As expected, we saw a heavy decline in Indonesia’s export and import performance in April 2023. But, because imports plunged heavier than exports, it also meant Indonesia could enjoy a comfortable USD $3.94 billion trade surplus.
In mid-January 2023 Indonesia’s Statistical Agency (Badan Pusat Statistik, or BPS) released Indonesia’s December 2022 trade data, implying we now also have a clear view of the country’s trade performance in full-2022.
Over the past two (or three) months we have emphasized that it is worth following Indonesia’s trade performance in the last quarter of 2022 (Q4-2022) as these export and import data should give some clues whether the world (and Indonesia) is bound to experience an economic hiccup at the beginning of 2023.
Last month, when we discussed the trade performance of Indonesia, we questioned whether the steep decline in the country’s exports and imports in September 2022 (compared to August 2022) could actually be a tipping point for national trade.
Indonesia’s export performance was impressive in August 2022, touching a new all-time record level of USD $27.91 billion. It was particularly the strong rebound in the value of refined palm oil shipments that pushed Indonesian exports higher. Imports into Indonesia also increased, albeit at a much slower pace, which especially came on the back of sharp growth in imports of capital goods.
In line with our forecast, Indonesian exports to overseas markets declined mildly in July 2022 (compared to the previous month). However, unlike last month’s forecast, imports into Indonesia expanded mildly over the same period.
As expected, Indonesia’s trade performance rebounded strongly in June 2022. This was certainly not a surprise considering the country’s exports had been held back significantly in May 2022 because of the government’s palm oil export ban that was imposed between 28 April 2022 and 23 May 2022 (in an effort to stabilize domestic cooking oil prices).
As expected, Indonesia’s export performance was heavily disrupted by the palm oil export ban (that was imposed by the Indonesian government between 28 April and 23 May 2022 to stabilize the domestic cooking oil prices). Compared to the previous month, exports of animal/vegetable fats and oils (which include palm oil products) tumbled by a whopping USD $2.1 billion in May 2022.
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Previously we advised investors to be careful because various economic data that was to be released - both international and domestic - could reveal negative results and thus put great pressure on the benchmark stock index of Indonesia (IHSG or Jakarta Composite Index) on Tuesday (01/04). However, the data, particularly domestic data, were positive and made the IHSG jump 2.22 percent one day after the holiday on Monday (Nyepi or Hindu New Year). Investors used this context to purchase stocks, especially Indonesia's big cap stocks.
Although Indonesia is the world's largest archipelago, contains an abundance of commodities and has the world's fourth-largest population, the country's export and import figures are still small compared to the world's leading exporting and importing countries (see table below). There are many - and much smaller - countries that post much more impressive import and export data. In terms of exports, Indonesia is too dependent on commodities (accounting for around 60 percent of all exports) causing problems in times of price downswings.
Imports of oil will accelerate to 1.6 million barrels per day (bpd) by 2020 if fuels continue to be subsidized by the Indonesian government. This development will seriously burden Indonesia's trade balance (and current account). In 2013, Indonesia posted a trade deficit of USD $12.6 billion in the oil & gas sector. Due to improved performance in the non-oil & gas sector, the overall trade deficit was kept at USD $4.06 billion. Besides placing downward pressure on the rupiah exchange rate, expensive subsidies also burden the state budget.
Indonesia has the potential to become a global force in the biodiesel industry because of the country’s position as the world’s top producer of crude palm oil (CPO). In 2014, Indonesia’s CPO production is estimated to total 30 million tons. Traditionally, Indonesia exports about 75 percent of its total CPO production, particularly to the giant economies of China and India. As such, this commodity is one of Indonesia's most important foreign exchange earners, apart from coal, in the non-oil and gas sector.
ICRA Indonesia, an independent credit rating agency and subsidiary of ICRA Ltd. (associate of Moody's Investors Service), publishes a monthly newsletter which provides an update on the financial and economic developments in Indonesia of the last month. In the February 2014 edition, a number of important topics that are monitored include Indonesia's inflation rate, the trade balance, the current account deficit, the IDR rupiah exchange rate, and gross domestic product (GDP) growth. Below is an excerpt of the newsletter:
Indonesian Economic Minister Hatta Rajasa said that the government is currently engaged in preparing a third economic policy package that aims to reduce the country's current account deficit. In August and December 2013, the government had already implemented two policy reform packages as Indonesia's wide current account deficit and high inflation in combination with the looming end of the Federal Reserve's quantitative easing program led to large capital outflows, thus resulting in sharp rupiah depreciation.
The central bank of Indonesia (Bank Indonesia) believes that the USD $430 million trade deficit that was recorded in January 2014 is a normal result taking into account the implementation of the ban on exports of unprocessed minerals (which reduces exports of materials such as copper and nickel) and seasonal trends as exports are always lower in January than in December due the end of winter peak demand for raw materials and ongoing contractual negotiations at the beginning of each year.
The central bank of Indonesia (Bank Indonesia) believes that Indonesia's recently introduced ban on the export of unprocessed minerals, in effect since 12 January 2014, will result in slowing economic growth in several regions in the eastern part of Indonesia as these regions are main sources of mineral production. Doddy Zulverdi, Head of the Economic Assessment Group in Bank Indonesia's Department of Economic and Monetary Policy, said that Sulawesi and Kalimantan will post slowing economic growth this year.
The current account deficit of Indonesia is expected to ease further in the first quarter of 2014 due to a possible slowdown of imports according to Deputy Finance Minister Bambang Brodjonegoro. This slowdown is estimated to be caused by the implementation of Indonesia's higher income tax on the import of durable consumer goods, effective from January 2014. However, the deficit will not ease markedly from the USD $4 billion deficit (equivalent to 1.98 percent of the country's gross domestic product) recorded in the fourth quarter of 2013.
At Bank Indonesia's Board of Governors’ Meeting today (13/02), it was decided to maintain the country's benchmark interest rate (BI rate) at 7.50 percent as well as the interest rates on the Lending Facility and Deposit Facility at 7.50 percent and 5.75 percent respectively. The policy is consistent with the tight monetary policy stance currently adopted in order to steer inflation back towards its target corridor of 4.5±1 percent in 2014 and 4±1 percent in 2015, as well as to reduce the current account deficit to a more sustainable level.
