Jakarta, IO – Campaigning for Indonesia’s general elections, which comprise legislative and presidential campaigns, has begun in earnest. The presidential and vice presidential candidates are making their pitches for votes, by offering their ideas and positions on issues, from economics, social welfare, legal reform, health care, education, scientific endeavor, environmental sustainability to culture. Economy-wise, the topics encompass job creation to Indonesia’s international trade performance (in terms of exports, imports and trade balance). Unfortunately, the latter is often not given sufficient attention in the candidates’ vision and mission statements, as well as policy plans.
As Southeast Asia’s largest economy, Indonesia is always in the spotlight of global trade. In recent years, the country has experienced a remarkable economic transformation, as indicated by, among others, its significant trade surplus, a stance where a country’s exports exceed its imports. This is indicative not only of strong economic performance but also a strategic shift in national economic policy.
This development becomes increasingly relevant amid global uncertainties, where many countries are struggling to maintain their trade balance. Indonesia’s trade surplus is not only the result of increased exports, but also effective government policies in managing imports and fostering domestic production. This reflects Indonesia’s efforts to achieve economic self-reliance and reduce its dependence on fluctuating global markets.
From a microeconomic perspective, this surplus has a broad impact on domestic economic sectors, including an uptick in production, job creation and revenue growth for business players. In addition, from a macroeconomic perspective, the trade surplus helps support stability of the Rupiah exchange rate, bolster foreign exchange reserves, and boost the confidence of investors in Indonesia’s economy.
However, behind these encouraging numbers lies a host of challenges and considerations that need to be addressed. Dependence on a few export commodities and major export markets carry with them inherent risks arising from sudden changes in global demand or international trade policies. Therefore, it is important for Indonesia to continuously innovate and diversify its export products and export markets, to maintain this positive momentum.
From 2020 to 2023, Indonesia’s economy has seen positive developments in terms of a trade surplus. At the outset of this period, the world faced an unprecedented global health and socio-economic crisis triggered by the Covid-19 pandemic, which subsequently posed significant challenges to global trade. However, Indonesia managed to navigate this situation quite effectively. Since May 2020, the country has recorded a trade surplus for 43 consecutive months, indicating its economic resilience in the face of global uncertainties.
In 2023, Indonesia’s trade surplus still trended positively. In February, the surplus hit US$5.48 billion, mainly driven by the non-oil and gas sector, especially machinery, electrical equipment, and tin downstream products, as well as animal fats and vegetable oils. Key markets, such as those of the US, India and China have been the key drivers behind the surplus. Meanwhile, in August, the trade surplus reached US$3.12 billion, an indication that global commodity prices, especially coal and palm oil, are still at a favorable level.
This demonstrates Indonesia’s success in taking advantage of the global conditions to strengthen its own economy. Despite challenges such as commodity price fluctuations and weaker global demand, Indonesia has shown effective adaptation in managing its exports and imports. However, it is worth noting that the dynamics of our global economy and domestic politics may influence trade performance in the future. This emphasizes the importance of responsive policies and diversification strategies in trade to maintain the positive momentum. (FIGURE-1)
The key commodities contributing to the trade surplus range from machinery and electrical equipment, featuring technological manufacturing advancements, to agricultural-based products such as animal fats and vegetable oils, as well as metals such as tin. As exports to the US, India and China make up the largest proportion of the trade surplus, they only go to prove how strategically important trade relations with these economic powerhouses which have high demand for Indonesian export products are. Factors such as product quality, trade policies and geopolitical stability also influence the dynamics of exports to these countries.
The fluctuations in exports and imports that Indonesia experiences also show how integrated and responsive Indonesia’s economy is to global economic dynamics. For example, despite an increase in trade surplus in August, the decline in the value of the country’s exports compared to the same period the year before shows the impact of the normalization of global commodity prices and how a global economic slump is affecting demand.
The anticipated narrowing of a trade surplus in May, due to export and import contraction, underscores the impact of falling commodity prices and a global economy under pressure. Domestic politics also plays a contributory rôle, as political uncertainty can result in investors and entrepreneurs taking a wait-and-see approach, which in turn impacts production and investment decisions.
This condition underlines the importance of dynamic and adaptive trade policies, as well as the need for market and export diversification to reduce Indonesia’s overdependence on certain commodities or export markets.