Indonesia’s trade surplus plummets to lowest level in years

The country enjoyed a surplus streak since May 2020, but that almost came to an end as imports shot up to $21.28 billion from $15.35 billion.

Deni Ghifari

Deni Ghifari

The Jakarta Post


Go international: A worker cuts an iron bar on July 15, 2022 at the Belawan International Container Terminal in Medan, North Sumatra. Belawan Port handles both export and import activities.(Antara/Fransisco Carolio)

June 16, 2023

JAKARTA – A steep rise in exports notwithstanding, Indonesia’s trade balance was nearly wiped out in May because of a steeper increase in imports.

As Statistics Indonesia (BPS) revealed on Thursday, the value of goods shipped out of the country exceeded incoming shipments by just US$440 million last month.

“The May surplus is the lowest in 37 months,” BPS official Edy Mahmud announced in a press conference on Thursday.

Indonesia has enjoyed a surplus streak since May 2020, but that almost came to an end last month as imports shot up to $21.28 billion from $15.35 billion logged in the preceding month.

This 38.65 percent increase was not matched by an equal rise in exports, as the latter only rose by 12.61 percent from $19.29 billion in April to $21.72 billion last month.

Experts believe the archipelago will experience trade deficits again in the near future as a result of declining commodity prices and weakening global demand.

Faisal Rachman, an economist with state-owned lender Bank Mandiri, said the trade surplus could narrow further and may “turn into a deficit sooner than previously anticipated.”

However, he noted that rising imports suggested domestic demand was improving on the back of Indonesia’s economic resilience.

Earlier this month, Bank Indonesia (BI) revealed that the country had tamed inflation to bring the annual rate back down to 4 percent, and thereby meeting the central bank’s target, faster than expected.

As reported earlier this week, BI’s consumer confidence index hit a one-year high as Indonesians were more optimistic about the country’s economic outlook and the availability of jobs, which is generally a precursor to rising household spending.

Moreover, late last month BI kept its key interest rates unchanged for a fourth month in a row, leaving its seven-day reverse repo rate at 5.75 percent, the level it reached in January after being raised by a cumulative 225 basis points (bps) beginning in August last year.

Global economic advisory firm Oxford Economics believes BI may start cutting policy rates in the fourth quarter of 2023, earlier than its previous expectation for rates to begin coming down only next year.

“There is still economic slack and high public debt, and a more stable currency and lower inflation look set to encourage an earlier rate cut,” wrote Oxford Economics assistant economist Makoto Tsuchiya in a press statement released on Thursday.

High-speed rail bumping up imports

Notably, Indonesia’s non-oil and gas trade with China saw an unusually high deficit of $1.1 billion, which was mainly attributed to imports in machinery as well as mechanical and electrical equipment.

Irman Faiz, an economist with publicly listed lender Bank Danamon, explained that the surge in Indonesian imports from Asia’s biggest economy was “a one-time hike” brought about by the Jakarta-Bandung high-speed railway project, which is in the final phase of construction.

“Going forward, we still expect imports to climb, though at a more moderate pace compared with May,” said Irman in a press statement released on Thursday.

China has been instrumental in the construction of Indonesia’s first high-speed rail link, which is scheduled to become operational in August. The Indonesian-Chinese joint-venture building the railway has been granted an 80-year concession period for the project, which is seen as a showcase for the modernization of transportation under China’s Belt and Road Initiative.

A delay in the training of local staff, however, means the project will likely rely heavily on Chinese train drivers and engineers at least during the first year of operation.

China is Indonesia’s paramount trade partner, as reflected in bilateral trade worth $30.99 billion in this year’s first quarter, far surpassing Japan as the runner-up with $9.67 billion.

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