Achieving export recovery<\/p>\n
Ari A. Perdana, Centre for Strategic and International Studies
\n(CSIS), Jakarta, Ari_Perdana@csis.or.id<\/p>\n
Before the aggression in Iraq, Indonesia's foreign trade
\nindicators raised some hopes of a recovery. Total exports in 2002
\nwere US$57 billion, 1.2 percent higher than those in 2001. Export
\ngrowth was driven mainly by non-oil and gas exports, which grew
\nby 2.8 percent, offsetting the decline in oil and gas exports.
\nExports improved in the second half of last year. In the first
\nhalf, export growth was still negative. Export growth continued
\ninto early 2003, reaching almost $10 billion in the first two
\nmonths. In comparison, exports in the same period last year were
\nonly $8.2 billion.<\/p>\n
Import performance has also supported prospects for export
\nrecovery. In January and February of this year, imports increased
\nby 37 percent compared with the same period last year. Classified
\nby type of goods, the highest increase was in raw materials and
\nintermediate goods (43 percent), followed by capital goods (22
\npercent). Last year, growth in the importation of capital goods
\nwas still negative, while raw materials and intermediate goods
\nimports started to grow slightly, by 1.5 percent. An increase in
\nimports in these two goods classifications usually indicates a
\nrecovery in domestic production activity, which should lead to
\nfurther export growth.<\/p>\n
War in Iraq disrupted the optimism. Tensions in the region
\nhave hurt the country's exports to the Middle East. Some domestic
\nproducers have reported the cancellation of orders from elsewhere
\nin the world, due to increased transportation costs and growing
\nsecurity concerns.<\/p>\n
While resolution of the war is still uncertain, the recent
\nSARS epidemic is another blow to the economy. The direct impact
\nof the hysteria created by SARS is disruption to the mobility of
\ngoods, services and human resources in the countries affected.
\nFrom the Indonesian point of view, exports to the troubled
\ncountries will be affected, as there will be reduced
\ntransportation for Indonesian goods. The countries most affected
\nby SARS, China (including Hong Kong), Singapore and Taiwan, are
\namong the top ten destinations for Indonesian exports. Non-oil
\nand gas export to the countries in 2002 were valued at $8
\nbillion, or 18 percent of total non-oil and gas exports. Exports
\nto other countries or regions may be affected if Indonesia is
\nalso perceived to be an affected country.<\/p>\n
Besides exports, SARS could potentially reduce imports from
\nthe affected countries. As well as major export destinations,
\nChina, Singapore and Taiwan are also Indonesia's main sources of
\nimported goods. The value of imports from the three countries in
\n2002 was $5 billion. That is 20 percent of total non-oil and gas
\nimports. Since the majority of imports from the three countries
\nare raw materials, intermediate and capital goods, declining
\nimports could hurt domestic industries. This is because domestic
\nproduction activities still depends on the supply of imported
\ngoods.<\/p>\n
The SARS epidemic, together with war in Iraq, has
\nsignificantly hurt the tourism sector. This is indicated by a
\ndecline in the number of incoming tourists and by flight
\ncancellations. Fortunately, so far, the SARS epidemic has yet to
\nbe a significant blow for exports and imports. It has not been
\nproven that the goods traded are a medium of transfer for the
\nvirus.<\/p>\n
However, the government and domestic business players must
\nanticipate the negative impact of this recent hysteria. It is
\nalso important to remember that, even without the SARS epidemic,
\nthere are some points to note regarding the export performance
\nshown by the statistics.<\/p>\n
First, the export growth during the first months of this year
\nhas been driven by oil and gas exports. Such exports, which
\naccount for only a quarter of Indonesia's total exports, grew by
\n46 percent. More specifically, the growth was mainly due to
\nhigher world oil prices, following the earlier uncertainty
\nregarding the war. Meanwhile, non-oil and gas exports, which
\naccount for 75 percent of total exports, grew only by 11 percent.<\/p>\n
Second, the performance of leading export commodities is still
\nweak. Manufactured products, contributing 68 percent of total
\nexports, grew by only 2.2 percent last year. Exports of leading
\nmanufactured commodities, such as machinery and electrical
\nproducts, grew by only 1 percent. Non-knitted clothing even
\ndeclined by 12 percent, while knitted products declined by 17
\npercent.<\/p>\n
Another point concerning prospects for this year's export
\nrecovery is the global economic situation. Demands for Indonesian
\ncommodities depend on the economic performance of the destination
\ncountries. The two largest markets for Indonesian products are
\nJapan and the U.S. Combined, the market in both countries absorbs
\nalmost half of all Indonesian exports, or about 40 percent of
\nnon-oil and gas exports. The problem is that both countries still
\nface possible recession, and this year's performance will depend
\non the outcome of war in Iraq. The third-largest market for
\nIndonesian product is Singapore, whose economy is also in
\ndecline.<\/p>\n
There are several anticipatory measures that can be taken to
\nmaintain the momentum of export recovery. First, the government
\nand business sector should try to promote several non-leading
\ncommodities that have been growing for the past few quarters. For
\nexample, exports of animal and vegetable fats and oils, which
\naccount for only 6 percent of total exports, grew by 80 percent
\nlast year.<\/p>\n
Second, we should also promote exports to nontraditional
\nmarkets, as alternatives to compensate for traditional
\ndestinations declining due to recession, war and SARS. Take South
\nKorea, for example. Last year, exports to the country increased
\nby US$95 million (18 percent), the highest increase among
\nIndonesian trading partners. Other alternatives are the promotion
\nof trade with member countries of the Association of Southeast
\nAsian Nations (ASEAN), using the momentum of the ASEAN Free Trade
\nArea.<\/p>\n
To complement the strategy for export promotion, the economic
\nplayers should also exploit domestic market potential. It would
\ntake more space to discuss the potential role of the domestic
\nmarket in supporting economic recovery. But the discussion over
\nthis has already commenced, and the initiative should be promoted
\nfurther.<\/p>",
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