U.S. economic slow down threatens Indonesia's export

JAKARTA (JP): The economic slowdown in the United States, one of Indonesia's main business partners, could deal a major blow to the country's exports, economists have warned.

With recession looming in the U.S economy, it will be difficult to meet the government's target of export earnings of about US$60 billion this year, they said.

"The slowdown in the U.S economy will have a direct impact on Indonesian exports," economist Dradjat H. Wibowo of the Institute for Economics & Finance Development (Indef) told The Jakarta Post.

Between January and November of last year, Indonesia booked export earnings of $56.65 billion, up 28.23 percent from the same period the previous year.

For this year, the government expects exports will increase by only about 10 percent, partly due to the U.S. economic slowdown.

The U.S. market absorbed about 16 percent of Indonesia's exports or about $7.23 billion of the total exports between January and November of last year.

The U.S. economic growth slowed to an annual rate of 1.4 percent in the fourth quarter of 2000 from 2.2 percent in the third, the government reported Wednesday.

A number of large U.S companies have reported mass lay-offs within recent weeks as a result of the country's sluggish market.

Dradjat said that U.S. consumer confidence had also fallen for three consecutive months, for the first time in two years.

"Consumer confidence in the U.S. is at its lowest for two years," he explained.

To ward off a recession, he went on, the Federal Reserve had cut its interest rates to 5.5 percent in January. But Dradjat said the move would weaken the U.S dollar against other strong currencies, thus making imports, including those from Indonesia, more expensive.

"Our products will be relatively more expensive to buy in America than before (the interest cut)," he said.

A slowing U.S economy, he continued, would also result in a lower demand for energy.

"As demand for energy drops, world oil prices will fall, and that reduces oil export revenues," he said, adding: "We'll be seeing a cut in our state budget."

Indonesia's export revenues are largely generated by its oil and gas industry.

Strong oil prices last year fueled Indonesia's high level of export revenues, which helped the country cover part of its state budget deficit.

Separately, president of accounting firm Ernst & Young, Peter W. Knox, expressed a similar warning in respect of Indonesian export revenues this year.

However, prevailing political, legal and security uncertainties remained the biggest obstacles for boosting Indonesian exports, he added.

He said the country might minimize the impact of stagnant export growth by attracting more foreign capital.

According to him, Indonesia is a more potential investment destination than its neighboring countries.

Irwandy Muslim, the outgoing executive director of the Indonesian Textile Association (API) said orders from the U.S. had dropped.

"We've seen a drastic drop in orders since last December. Throughout January there have been no new orders," he admitted.

He said that for the two months, orders for textile products usually reached about $500 million.

"Usually about 30 percent of those orders originate from America, but this has not happened," he added.

According to him, the lackluster demand from the U.S. might linger for another six to seven months.

Vice president for investment affairs at the Indonesian Chamber of Commerce and Industry (Kadin), Bambang Sujagad Susanto, said the chamber would discuss the effect of the slowing U.S economy at its April meeting.

He said export-oriented industries should cut the use of imported raw materials to reduce the decline in export revenues.

"We should be able to substitute our imported raw materials," he said. (bkm/05)