EU, Indonesia's major trading partner

EU, Indonesia's major trading partner

Over the past two decades, trade and investment ties between Indonesia and the European Union (EU) have grown rapidly, during which Indonesia has embarked upon an export diversification policy. This means new types of export products have become available and found especially strong demand in European markets. As a result, the EU's share in Indonesian exports grew from 6 percent in the mid-1980s to 16 percent now.

By the early 1990s, the EU had become the second export destination for Indonesian products after Japan. Europe's imports have also grown rapidly and now constitute 22 percent of Indonesia's total imports. The EU is the second most important source for Indonesia's imports.

An economic crisis that struck Indonesia in late 1997 has had a powerful impact on the amount and composition of trade between Indonesia and the EU. The European statistical agency Eurostat points to a healthy growth of 9 percent in Indonesian exports to the EU from January to November 1998. Taking into account the devaluation of the rupiah against European currencies, this implies a significant increase in the volume of goods traded.

The crisis has meant a shift in the sectoral composition of Indonesian exports. In agricultural, palm oil exports were hit by the imposition of an export levy, and by October 1998 declined by 19 percent. In the manufacturing sector, Indonesian textile and footwear exports are under pressure. The pulp and paper sector in contrast, is growing to become a major export category.

Following the collapse of the rupiah in January 1998, Indonesian imports from the EU dropped by more than half in two months. After this initial steep fall, imports have held roughly stable at a new level of about euro (EUR) 300 million per month.

One import category that has done well is machinery and capital goods. Imports from Europe which experienced above average decline are luxury goods, industrial inputs such as steel and plastics and high-tech equipment.

EU trade links are sometimes underestimated because the EU consists of 15 different countries. Looking at these individually, they do not seem major partners. Unified in the single European market, however, they form the world's largest trading bloc.