Focus on Maintaining the Domestic Market

KOMPAS/ANGGER PUTRANTO

Fish canning workers pack lemuru fish at a canning factory owned by PT Pacific Harvest in Muncar, Banyuwangi, East Java, on Wednesday, May 8, 2019.

JAKARTA, KOMPAS — Business people are finding it difficult to spur exports amid sluggish international trade and the global economic slowdown . The short-term realistic step that Indonesia needs to take is to maintain the domestic market and improve or at least keep the deficit from deepening.

Indonesian Chamber of Commerce and Industry (Kadin) export development committee chairman Handito Joewono, when contacted on Friday (7/6/2019), stated that in the medium and long-term, Indonesia inevitably had to develop exports. The economic structure must also continue to be strengthened by encouraging productivity.

Previously, the World Bank corrected the 2019 global economic growth projection from 2.9 percent to 2.6 percent. The slowdown was mainly due to the flow of international trade which was weak due to the trade war between the United States and China.

Yet, Handito acknowledged, when the condition of the global economy is challenging as it is today, it is difficult to expect exports to increase due to falling trade demand and volume. Therefore, it would be better for Indonesia to secure the deficit by reducing imports.

During January-April 2019, based on data from Statistics Indonesia (BPS), Indonesia\'s trade deficit reached US$2.56 billion. During that period, the value of Indonesia\'s exports stood at $53.2 billion while the import value was $55.77 billion.

KOMPAS/ABDULLAH FIKRI ASHRI

A ship bearing made from natural rubber is produced at PT Samudera Luas Paramacitra’s (SLP) factory in Cirebon, West Java, on Monday, April 4, 2019. Products are being manufactured jointly by PT SLP, the Agency for the Assessment and Application of Technology and the Research, Technology and Higher Education Ministry on a commercial scale for the first time.

Indonesian Foods and Beverages Businesspersons Association chairman Adhi S Lukman said although in the short-term Indonesia will be affected by the trade war, Indonesia must be optimistic.

Indonesia should take advantage from the trade war by establishing bilateral cooperation with China or the US. "Moreover, China, the US and Japan are the top three Indonesian trade partners," Adhi said.

Investment

According to Adhi, coordination between the government and business people must be strengthened to safeguard the local market. Public consumption also needs to be maintained so that the domestic market remains conducive.

This includes ways to anticipate the invasion of imported products due to the trade war, such as by producing goods domestically to substitute imports.

Fortunately, amid the global economic slowdown, Indonesia benefited from the improvement in debt ratings and global competitiveness. Indonesia\'s status as a very investment-worthy country is expected to become a magnet for foreign capital.

At the end of May 2019, the ratings agency Standard and Poor (S&P) raised Indonesia\'s debt rating above the investment-worthy level. The same status was previously given by Fitch Ratings and Moody\'s Investor Service.

KOMPAS/DWI BAYU RADIUS

Indo Porcelain tableware workers put pictures on plates in Serang, Banten, on Monday, May 13, 2019. The company produces around 1.7 million tableware units per month. About 65 percent of the products are exported to America, Asia and Europe.

The International Institute for Management Development (IMD) increased Indonesia\'s competitiveness from 43rd position last year to 32nd this year. IMD, among others, uses indicators of economic performance, government efficiency, business efficiency and infrastructure.

Previously, Coordinating Economic Minister Darmin Nasution stated that the increase would attract investment into Indonesia. He is optimistic that the Indonesian economy can continue to grow. In the second quarter of 2019, for example, the Indonesian economy can grow 5.2 percent.

PT Bahana Sekuritas chief economist Satria Sambijantoro assessed that global investors have the potential to see Indonesia as a country with low risk assets (safe haven). "An increase in external risk makes capital go to a safe haven," he said.

According to Satria, an improvement in Indonesia\'s debt rating could be an opportunity to attract the capital, both through direct investments and portfolios. Stakeholders also need to carefully decide on monetary policy to maintain investment attractiveness.

Meanwhile, the fiscal policy that needs to be taken, said Satria, is consolidation to reduce the budget deficit. This year, the budget deficit is targeted at 1.84 percent of gross domestic product.

(CAS/DIM)