Workers harvest tea leaves in the plantation area of PT Perkebunan Nusantara (PTPN) VI state-owned plantation company, Kayu Aro, Kerinci, Jambi, Monday (14/01/2019).
The record-high trade deficit and the wide current account deficit are the main concerns of the country’s economy. Pressures are growing for the government to take more serious measure in managing these deficits to reduce their impact on the economy.
Statistics Indonesia (BPS) recorded a trade deficit of $8.57 billion (about Rp 120.6 trillion) in 2018, the highest since 1975. The poor performance in the balance of trade was due to greater imports (20.2 percent) than exports (6.7 percent).
The trade deficit, according to the government, was caused by the large deficit in the oil and gas trade as a result of increased crude oil and petroleum imports. However, several economists also highlighted a downward trend in the non-oil and gas trade surplus.
The decline in the non-oil and gas trade surplus is caused by an increase in non-oil and gas imports. Non-oil and gas exports remain positive, despite lower global prices and lower demand from main export countries. The swelling trade deficit is justified on the one hand in terms of both global and domestic causes. However, on the other hand, we cannot allow the situation to continue because it could further drag down the current account balance and the rupiah exchange rate, and cause economic vulnerability.
There is no other way but to improve exports to overcome the growing trade deficit. This is a challenge for the government in the midst of the trade war that has also affected the US and Chinese demand for Indonesian exports, as well as the trade barriers that the European Union and India has imposed on our palm oil products.
In response to the swelling trade deficit, the government has introduced a number of measures to reduce imports, but the impacts have yet to be felt. The problem here is reducing the trade deficit without negatively impacting economic growth, because 90 percent of our imports are intended for the productive activities (raw materials and capital goods) needed to spur economic growth, whereas consumer goods imports are at a mere 9.07 percent.
On the one hand, the generally weak export performance also indicates that the deindustrialization problem that has been ongoing for more than a decade has not been resolved. As a consequence, we still depend on commodity exports to increase foreign exchange transactions.
More intense measures to strengthen manufacturing is needed to support the export base and reduce our dependence on imports. At the same time, the government must be firm in addressing rent-seeking activities in importing steel, refined sugar, rice and salt.
The government cannot lose to the “economic mafia”, including those in the food trade. Therefore, urgent measures must be taken now to resolve the trade deficit by diversifying and expanding export markets, boosting the services sector, encouraging the use of domestic raw materials and increasing market access by concluding negotiations on a number of trade agreements, especially bilateral agreements.
