Ending 2021 with cheers
The year 2021 was indeed a challenging year. The pandemic was not yet declared over, and the overhang led to continued uncertainty in the global economy. But in ending this year, Indonesia has seen some reasons to cheer.
The first reason, as mentioned in our previous reports, is the amount of investment that has flowed into the country, such as the investment by Hyundai to develop the electric vehicles plant after the company had already developed the plant for the ICE cars. This year, LG Chem, a Korean company, jointly developed an EV battery plant with Hyundai and KIA Motors near the Hyundai automotive plant in West Java.
The second reason is that Indonesia has largely succeeded in developing smelters for a number of metal ores, such as bauxite, nickel, copper and iron. At the same time, a number of companies developed HPAL (High Pressure Acid Leach) plants, which process nickel ore into raw materials for EV batteries. In fact, one of them, Halmahera Persada Lygend, started to produce commercially in June 2021. Other plants will come on stream in 2022. This will really place Indonesia as one of the largest producers of MHP (Mixed Hydroxide Precipitates), the first step in processing the raw materials for EV batteries.
The third reason is that the Central Board of Statistics in Indonesia released its balance of trade report for November 2021, which displayed another surplus, even though somewhat lower than the previous month. The surplus in November stood at $3,513.8 million compared to the $5,736.1 achieved in the previous month. The total trade surplus for the first eleven months of 2021 is $34,322.5 million, a record surplus so far. Exports for November reached $22,841.8 million, while imports reached $19,328 million. Cumulative exports from January to November 2021 reached $209,160.3 million, while cumulative imports for the same period were $174,837.8 million. The trade balance showed that the level of exports has expanded further from its pre-Covid levels, and in fact was the best export performance ever, overtaking the record figure achieved in 2011 of $203 billion. One of the main factors driving the trade surplus was the commodities boom, which boosted prices for crude palm oil and coal. In addition, iron and steel products quickly became some of the largest exports in the country, reaching $18.6 billion for the year to November 2021. This export category had not yet existed when the country broke the record for exports in 2011.
Another reason to cheer is that the Central Board of Statistics also reported the Consumer Price Index for the month of November 2021, which resulted in inflation of 0.37%. With that monthly inflation, year-over-year inflation in November 2021 reached 1.75%, a level below the target inflation corridor. This is certainly a benign level of inflation in the midst of upward pressure on the global inflation front. With that level of year-over-year inflation, Bank Indonesia decided to keep its benchmark interest rate constant at 3.50% at its Monetary Policy Meeting of December 2021. This policy, together with other measures taken by the Central Bank, has succeeded in strengthening market sentiment on Indonesia.
Yet another reason for cheer comes from the fiscal side. Although the Indonesian budget recorded its largest deficit in 2020, at 6.1% of GDP, the budget deficit was for 2021 was set lower, at 5.70% of GDP. If that deficit is achieved, Indonesian deficit will be lowered further in 2022, so that by 2023, the Indonesian budget deficit will already be below 3%, as stipulated by law.
Now read on...
Register to sample a report