Key Programs to Reduce Trade Deficit to Begin in 2020

The government will implement six programs to reduce the country’s growing trade deficit. With such measures, the target stipulated in the 2020-2024 National Medium-Term Development Plan (RPJMN) can be achieved.

Kompas/Priyombodo

Aerial photo of Tanjung Priok Port in North Jakarta managed by PT Pelindo II, as seen on Monday (16/12/2019). According to Statistics Indonesia (BPS), the value of Indonesia’s exports in November 2019 was US$14.01 billion, down 6.17 percent from exports in October 2019. If compared to November 2018 the exports dropped 5.67 percent.

JAKARTA, KOMPAS - The government will begin an economic transformation to reduce the trade deficit in early 2020 by increasing exports and directing industrialization toward import substitution.

The two priorities are part of six programs eyed by the government to reduce the trade deficit. They include the mandatory use of B30 biodiesel (a fuel blend of 30 percent biofuel and 70 percent diesel), coal gasification, the restructuring of Trans-Pacific Petrochemical Indotama (TPPI), mineral smelter construction, the development of green refineries and the imposition of temporary safeguard import duties (BMTPS).

The undersecretary for macroeconomic and financial coordination at the Office of the Coordinating Economic Minister, Iskandar Simorangkir, said in Jakarta on Tuesday that the six short-term programs would be implemented in early 2020.

The mandatory use of B30 biodiesel will begin in2020 by distributing 9.6 million kiloliters of biofuel. The B30 biodiesel program is expected to save up to US$4.8 billion in foreign exchange.

All of the trade deficit reduction programs will be implemented within a year.

"This step will be followed by the accelerated construction of a coal gasification plant with a capacity of 1.8 million tons a year to reduce LPG [liquefied petroleum gas] imports," he said.

The third program is the restructuring of the TPPI petrochemical plant to reduce imports of petrochemical products. This program is expected to be able to save up to $1 billion a year in foreign exchange. Next is the construction of smelters to process and refine mineral ores as part of the program to strengthen the downstream industry in the mining sector, especially the nickel industry.

The aluminum upstream and downstream industries will also be integrated through the State-Owned Enterprises Synergy Program. Meanwhile, the fifth program is the development of green refineries to produce palm oil-based biofuel (green fuel) at Pertamina’s refinery in Plaju, South Sumatra. The development of green fuels, such as green diesel and green gasoline, which is now still in the research and experimental stage, will replace fossil fuels.

Finally, the temporary safeguard import duties aim to protect domestic producers against imports. "All of the trade deficit reduction programs will be implemented within a year," Iskandar added.

With these six programs, the target stipulated in the 2020-2024 National Medium Term Development Plan (RPJMN) can be achieved. In the 2020-2024 RPJMN, exports and imports are each targeted to increase by 4.8 percent a year. More specifically, growth of non-oil and gas exports is expected average 7.2 percent a year. Meanwhile, average economic growth during the 2020-2024 period is set at 6 percent.

KOMPAS/PRIYOMBODO

Workers fill a vehicle’s tank with B30 biofuel during the launch of the B30 trial on Thursday (13/6/2019) at the Energy and Mineral Resources Ministry in Jakarta.

Concrete measures

On Monday, President Joko “Jokowi” Widodo called for the immediate implementation of the economic transformation to reduce deficits in trade and the current account. One of the President’s instructions is to reduce oil and gas imports.

According to the latest trade data issued by Statistics Indonesia (BPS), the trade deficit from January through November 2019 amounted to $3.10 billion (Rp 43.4 trillion). The deficit could widen the current account deficit in the final quarter of 2019. In the third quarter, the current account deficit reached $7.7 billion or 2.7 percent of the gross domestic product (GDP).

Iskandar estimates the current account deficit at the end of this year at 2.6 percent of the GDP. "The current account deficit slightly exceeded our target of 2.5 percent of the GDP. This is in line with the contraction in exports so far this year," he said.

The head of public information and communication services and cooperation department at the Energy and Mineral Resources Ministry, Agung Pribadi, said that, beginning on Jan 1, the content of palm oil-based biofuel in diesel fuel would be raised to 30 percent (B30) from 20 percent (B20) at present.

The director of investment planning and risk management at Pertamina, Heru Setiawan, said Pertamina would also cooperate with state-owned fertilizer producer PT Pupuk Kujang and the Bandung Institute of Technology to develop a catalyst-making plant.

KOMPAS/P RADITYA MAHENDRA YASA

Employees check equipment on Thursday (3/10/2019) at a gas pipeline plant belonging to PT Pertamina Gas in Tambaklorok, Semarang, Central Java.

A catalyst is a substance to accelerate the rate of chemical reactions at certain temperatures in the processing of oil and gas products. "So far, Indonesia has been importing catalysts worth $500 million a year," he said.

The deputy chair of the Indonesian Employers\' Association (Apindo), Shinta W. Kamdani, said Indonesian businesses would seize the opportunity of the US-China trade war by replacing Chinese products in the US market.

"We are targeting five main products, namely textiles, shoes, electronics, furniture and food and beverages. This is our focus to boost exports to the US," she said.

The Indonesian Institute of Sciences (LIPI) projects the Indonesian economy to grow 5.07 percent in 2019 and 5.04 percent in 2020. The US-China trade war, which has contributed to growing protectionism and the global economic slowdown, could continue to affect the Indonesian economy.

Good and proper governance was the key to accelerating the transformation to lift Indonesia\'s economic growth. "Global uncertainty cannot be avoided and requires a mix of policies to cope with it," said the head of LIPI\'s Economic Research Center, Agus Eko Nugroho