A longer-lasting trade surplus

INDONESIA - Report 01 Feb 2021 by Cyrillus Harinowo

Indonesia has enjoyed a number of commodities booms in the past few decades. These range from sugar, to rubber, to oil, with the most recent being the coal and CPO booms. These rapid periods of growth in commodities helped the trade balance and also increased the welfare of the people, which eventually benefited the Indonesian economy as a whole.

While pre-COVID-19, the Indonesian economy suffered a period of trade deficits, in 2020, the Indonesian trade balance reverted to a surplus for most of the year. In fact, the total trade surplus for the entire year of 2020 reached more than $21.7 billion, a significant reversal from the trade deficit of more than $3.5 billion in 2019.

By scrutinizing what happened with the trade data, I discovered that one factor of the trade surplus was the depressed economy, which brought down the level of imports. However, there was another interesting fact– that exports have expanded, so that the trade surplus has become firmer. One of the main factors was the turning point in exports and imports of iron and steel products, which flipped from a significant deficit in the previous year to a significant surplus in 2020. Looking into more detail, the rise of the trade balance was due to the rise of nickel-related products such as nickel pig iron, ferronickels, as well as stainless steel. This is an indication that Indonesia has started to enter a nickel boom at this time.

These phenomena were apparent when the Central Board of Statistics reported that the trade balance in December 2020 registered a large surplus. Exports for the month reached $16,539.3 million while imports reached $14,437.9 million, bringing the trade surplus for December 2020 to $2,101.4 million. Cumulative exports from January to December 2020 reached $163,301.5 million while cumulative imports for the same period reached $141,568.3 million. Therefore, the cumulative surplus for full-year 2020 stood at $21,739.2 million. The trade balance showed that the level of exports has started to approach a normal level.

The Central Board of Statistics also reported the Consumer Price Index for December, which resulted in inflation of 0.45%. With that monthly inflation, Y/Y inflation in December reached 1.68%, a level below the target inflation corridor. With that level of Y/Y inflation, Bank Indonesia decided to keep the benchmark interest rate constant at 3.75% at its Monetary Policy Meeting of January 2021. This policy, together with other measures by the Central Bank, has succeeded in strengthening market sentiment on Indonesia.

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