Wed, 02 Jun 2010

From: The Jakarta Globe

By Muhamad Al Azhari, Dion Bisara & Yessar Rosendar
Indonesia’s non-oil and gas trade deficit with China grew by fivefold in April, while the country’s overall trade surplus fell sharply, prompting more concerns from local business groups that the country was being flooded with cheap Chinese imports following the implementation of the Asean-China Free Trade Agreement.

Central Statistics Agency (BPS) chairman Rusman Heriawan on Tuesday said the country’s non-oil and gas trade deficit with China totaled $553.6 million in April, up from $99.7 million in April last year. Meanwhile, the overall trade surplus for April tumbled to $520 million from $2.06 billion in April 2009.

“Of course we are worried,” said Ernovian Ismy, secretary general of the Indonesia Textile Association (API). “Even without ACFTA, China’s products were already flooding our market.”

Ernovian urged the government to step up inspections at ports to crack down on the amount of counterfeited goods entering Indonesia.

Djimanto, deputy chairman of the Indonesian Employers’ Association (Apindo), predicted the trade deficit with China would continue at a similar level throughout the year. Local manufacturers would only be able to compete with the cheap imports when infrastructure was improved and business bureaucracy and red tape was reduced, he said.

However, not everyone was ringing alarm bells. First, the trade deficit with China for the first four months of the year was $1.6 billion, only a 5.3 percent increase from the same period a year earlier, while the overall trade surplus was $6.09 billion, a 7.2 percent increase from $5.68 billion in the first four months of 2009. Also, some analysts said many of the imports from China were capital goods, evidence that the private sector is expanding.

Ma Tieying, a Singapore-based economist with DBS Group Research, said the impact of the ACFTA was being overstated. “With regard to the impact of ACFTA, our view is that import tariffs between China and Asean have been gradually scaled back since 2005,” he said. “Therefore the impact is not new and should not be exaggerated.”

PT Bank Internasional Indonesia economist Juniman said he thought ACFTA was partially responsible for the widening deficit but that the strengthening rupiah had also played a part as it had made Chinese imports cheaper. “It was obvious that the ACFTA, which has been implemented since January, was going to have an impact. But the rupiah has appreciated from around Rp 10,000 against the dollar last year to about Rp 9,000 this year, making Chinese imports cheaper.”

But more imports from China was not necessarily a bad thing became many of the imports were capital goods which showed that the Indonesian private sector is expanding, Juniman said.

“Most of our power plant projects import a lot of machinery from China,” Juniman said.

According to BPS data, Indonesia’s exports in the first four months of 2010 were $47.59 billion, up 51.2 percent in the same period in 2009. Imports were up sharply, rising by 60.9 percent to $41.5 billion, from $25.8 billion in the same period a year ago.

Non-oil and gas exports rose by 43.87 percent in the January-April period to $38.7 billion, while oil and gas exports almost doubled, rising by 93.9 percent to $8.89 billion.

The country posted a $590 million trade surplus with the rest of the Asean bloc in the first four months of this year. It recorded a trade surplus of $1.06 billion with the United States, a $2.22 billion surplus with Europe and a $22.8 million deficit with Japan.

Commenting on Indonesia’s trade data, Ma said: “The growth momentum of exports seems to be easing. Macro policies in the emerging markets including China have become tighter. The fiscal austerity measures to be undertaken in south European economies will also affect their growth outlook from the second half of 2010. Indonesia’s import growth remained strong and significantly outpaced export growth, probably reflecting the strength in domestic demand.”