What Made the Indonesia Trade Deficit Narrow Last Year?

Indonesia trade deficit in 2019 was accounted to $3.2 billion, only around one third of the earlier year which was accounted to $8.6 billion, according to Central Bureau of Statistics BPS. What made it so since Indonesia’s export was actually decreasing?

Referring to the BPS data, the main factor for the deficit narrowing was due to the higher drop in import, compared to export. The country’s total exports fell 6.9 percent to $168 billion, while imports shrank 9.5 percent to $171 billion, the BPS data showed. 

Imports of raw materials – which accounted for 73 percent of total inbound shipments – declined the most, falling 12 percent last year from a year earlier.

Imports of capital goods like machinery and heavy equipment only dropped by 4.5 percent.

Imports of consumer goods – from Chinese smartphones to Italian olive oil – fell by 5.1 percent.  

Import of oil and gas also decreased last year. Indonesia’s oil and gas import value reached $9.3 billion, down from $12 billion in 2018. 

Fortunately, non-oil and gas trade posted a healthy surplus of $4 billion in 2019.

“Agricultural exports were the only sector that grew by 5.31 percent, although its contribution to overall exports was still small at 2.16 percent,” BPS Head Suhariyanto said. 

“Exports in the manufacturing industry and the mining sector experienced declines of 2.7 percent and 15 percent respectively. Exports in the oil and gas sector fell 27 percent,” he said.

Indonesia posted surpluses in trades with several countries, including the United States, India and the Netherlands.

Southeast Asia’s largest economy saw the biggest deficits in trades with China, Thailand and Australia. 

Yusuf Rendy Manilet, an economist at thinktank Indonesia’s Center of Reform on Economics (CORE), said the lower deficits raised concerns because they were driven by a decline in raw material imports that could signify slower economic activities. 

He said the deficits were in line with movements in the Manufacturing Purchasing Managers Index (PMI), a measurement for manufacturing activities in a country, which since July has been below expansion level.

The trade deficit may stay at the current level this year, Yusuf said, even though demand for Indonesia’s leading export products, such as palm oil, is improving – one good news for export.

“However, imports are also likely to increase in line with potential investment inflows, which will encourage imports of capital materials and raw materials. Deficit reduction will be marginal throughout 2020,” he said as quoted by thejakartaglobe

Leave a Reply

Your email address will not be published. Required fields are marked *