Mon, 08 Feb 2010

From: The Jakarta Post

By Cyrillus Harinowo Hadiwerdoyo, Jakarta
The Central Bureau of Statistics (BPS) recently reported the Indonesian export performance for December 2009. This report defied a lot of expectations since the Indonesian exports in December 2009 reached US$13.33 billion, setting an all-time record.

With this performance, total exports for the whole year reached $116.49 billion, a decline of almost 15 percent from the performance of the preceding year. The percentage decline, while not small, was much smaller than the prediction made in the beginning of the year.

What are the highlights of that report?

As well as exports being at a record rate, monthly exports in May 2008 were slightly lower than $13 billion. Apparently, the demand for our products as well as our capacity to deliver them had previously achieved a similar level.

Therefore, repeating that performance will certainly be easier for the export sector going forward.

Second, the performance of the basic commodities has shown certain resilience. Take three commodities, coal, CPO and rubber.

In 2008, their combined exports were around $34 billion, exceeding the total oil and gas exports, which reached $29 billion.

In 2009, however, the combined exports also reached around $31 billion, while oil and gas exports only posted a level of $19 billion.

The gap has been widening. Therefore while the prices of the three commodities have been significantly lower than the peak ever achieved in 2008, the total export performance did not change significantly. That means the increase in the export volume has partly compensated the drop in prices.

Third, exports of the manufactured products in the fourth quarter of 2009 had recovered from the previous decline by posting an export of $ 22 billion compared with $ 19.4 billion in the last quarter of 2008.

This kind of exports formed a major base for the future expansion, especially with the incoming investments that led Indonesia to join the regional production networks. Electronics and cars have become a major backbone for our industrial exports.

In the last few years, we saw a significant increase in the volume of our car exports in the neighboring countries as well as countries in the Middle East and Africa.

Fourth, the fourth-quarter increase in exports was more than the increase in imports. Therefore, the trade surplus was widening compared to the one in 2008.

The rise in the trade surplus made a major surplus of the entire balance of payments that led to a significant increase in the foreign exchange reserves of Bank Indonesia.

With that kind of achievement how should we predict the performance for 2010?

Many economists believed that the prospect of Indonesian exports would be better than the one of 2009 but will be less than the record ever achieved so far in 2008, which was $137 billion.

The government puts a relatively easy target of $114 billion for the total exports in 2010. A 10 percent increase in export for 2010, a feasible rate of growth for the year, will mean a total export of around $ 128 billion.

A 15 percent increase, on the other hand, will translate into around $ 134 billion, still less than the achievement in 2008.

Meanwhile, the global trading environment is still not as conducive as it was in 2008, especially when the commodity prices rose very highly. Therefore, many analysts believed that a rate of 15 percent growth will be quite difficult to achieve.

I beg to differ on that prediction. Let us look at the fourth-quarter performance, which showed a big turn around for this sector.

The fourth quarter of 2009 posted a total export of around $ 36 billion after encouraging results of October and November 2009 and especially the record achievement in December 2009.

The annual growth of exports for that quarter reached almost 24 percent compared to the same quarter of 2008.

Aside from the rate of growth, the sum of exports in the fourth quarter 2009 can be used as the starting point in predicting the 2010 exports. As we all know, the first three quarters of 2009 was an unusual period as a result of the global crises.

Global exports activity was down indiscriminately, but more toward high-value industrial products (white goods), such as electronics and automotive products.

The impact on the Indonesian exports, while not small, was much weaker than the neighboring countries that were hard hit by the global slump.

Still, the first three quarters was a shift in the long-term trend of the Indonesian exports. Therefore predicting the export outlook for 2010 by using the entire year's data, to my understanding, will be quite misleading.

The last quarter data were more appropriate because the data reflected the turnaround in the global trade and the capacity of the Indonesian producers to adjust.

If we use the fourth-quarter performance as a reference point, with a zero quarterly rate of growth for the whole of 2010, the export prediction for the entire year of 2010 will be around $140 billion, by multiplying the fourth quarter 2009 exports by four and rounded them down.

This level of exports will mean an annual rate of growth of around 20 percent compared to the total exports of 2009, a rate of growth that many analysts believed was difficult to achieve.

With a 5 percent quarterly rate of growth in the first quarter of 2010 and remained flat for the rest of the quarters, we will be able to see the export performance approaching $150 billion.

This level of exports will give almost thirty percent annual rate of growth compared to the one in 2008, a rate of growth that looks impossible to achieve with the global trading environment as we see today. As we all know, the two numbers will already exceed the record achieved in 2008.

I believe the prospect of the Indonesian exports of 2010 is brighter than the Indonesian government and many analysts believed. Time will be our judge and we will quickly see that by checking the outcomes in the first quarter of 2010.

The writer is an economist.