The Global Slowdown Has a Wider Impact

KOMPAS/ERWIN EDHI PRASETYA

Production activities take place in the garment division of PT Sri Rejeki Isman Tbk or Sritex in Sukoharjo, Central Java, on Wednesday (13/02/2019). The textile industry still has many opportunities in the domestic and export markets but faces challenges in terms of efficiency and global competition.

JAKARTA, KOMPAS – Indonesia suffered a trade deficit of US$1.16 billion in January this year. The global economic slowdown and the decline in global demand are considered to have contributed to the deficit in the trade balance. The government, therefore, needs to work extra hard to boost exports and reduce the surging imports.

Non-oil and gas trade suffered a deficit of $704.7 million, while oil and gas trade recorded a deficit of $454.8 million. If compared with the figure in January 2018, oil and gas trade in January this year actually improved as the deficit declined from $935.6 million. However, non-oil and gas trade worsened last month because there was a surplus of $179.6 million in January last year.

Coordinating Economic Minister Darmin Nasution said that the slowdown in global economic growth and the decline in trade in China and the United States had a negative impact in Indonesia. Non-oil and gas export growth has continued to slow since reaching its peak of $16.29 billion in July 2018.

"We are affected by trade wars. As a result, exports declined sharply, especially to China, the number one export destination," Darmin said in Jakarta on Friday.

Separately, the director of the Center of Reform on Economics (CORE), Mohammad Faisal, said that the trade deficit in January this year showed that non-oil and gas had more fundamental problems than oil and gas trade.

With the uncertainties in the global economy, the government has to be more careful in managing imports because the pace of import growth can be faster than exports, like in 2018. On the other hand, the government\'s move to reduce the oil and gas deficit by increasing the use of biodiesel is considered to be a step in the right direction.

Industrial products

Darmin said that the government would soon introduce a short-term policy to reduce the non-oil and gas trade deficit. Priority exports will no longer be given to raw commodities, but industrial goods. So far, there are two priority industrial products that will be pushed by the government, namely automotive products and garments.

There are at least five priority industrial sectors that have been included in the Industrial Revolution 4.0 road map, namely the chemical industry, textiles and textile products, electronics, automotive, and food and beverage. Other sectors such as the fishing industry, machinery, health equipment, furniture, and wood and paper products can also be included.

According to deputy chairman of the Indonesian Chamber of Commerce and Industry (Kadin) for international affairs Shinta Widjaja Kamdani, industry players need the government’s support in the form of land access, business licensing and infrastructure to boost exports.

She proposed prioritizing the development of processing industries in sectors that can produce products with high added value and can provide more employment. These industries include food and beverage, information technology, agribusiness and transportation.

Based on the category of goods, imports of chemical products increased by 47.14 percent to $295.3 million in January this year from $200.7 million in the same month last year. They mostly comprised raw materials and supporting industrial products.

"These chemicals are raw materials for textiles or petrochemicals, which includes the cosmetics and pharmaceutical industries," said the director general of the chemical, pharmaceutical and textile industries at the Industry Ministry, Achmad Sigit Dwiwahjono.

The increase in imports of chemical products is considered inseparable from the growth of the national textile and cosmetics industry. Therefore, investment is needed to strengthen industries capable of producing such raw materials domestically.

According to a lecturer at the University of Indonesia’s Faculty of Economics and Business, Fithra Faisal, commodity-based exports can no longer be relied on in the long run due to sharp fluctuation of their prices in global markets. Therefore, the government must take steps to encourage the establishment of processing industries in order to boost exports. (KRN / JUD / MED / CAS)