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High fuel imports hurt Indonesia's first-half trade balance

Publication Date : 05-08-2014

 

Indonesia’s trade balance continued to record a deficit in the first half of this year (H1), driven by a significant loss in the oil and gas trade, renewing pressure to further curb the consumption of subsidised fuel in the economy.

The nation’s trade balance posted a US$1.15-billion deficit in January to June, as exports reached $88.83 billion and imports hit $89.98 billion, the Central Statistics Agency (BPS) reported on Monday.

A marked surplus of $4.96 billion gained from non-oil and gas trade could not help bring the trade balance back to positive territory, as high, refined oil imports generated a sizeable deficit of $6.11 billion.

“The key to fix the trade balance is to curb imports. The good management of imports can result in a thin surplus or a modest deficit at the end of this year,” Standard Chartered economist Eric Sugandi told The Jakarta Post.

While overcoming the high import of capital goods is difficult and takes longer due to the necessity of building the import-substitute industry, according to Eric, controling the importation of fuel would be easier.

Without fiscal space in the 2014 revised state budget, the most feasible option for the current government is fuel rationing, which began last week in Jakarta, Eric said.

The rationing could be expanded to Greater Jakarta and also to gasoline stations nationwide but excluding motorcycles, although the move would not be without social and political risks, he added.

The government last week prohibited the sale of diesel fuel in Central Jakarta and at toll-road gas stations. It also applied a daily time limit for the sale of subsidized diesel fuel in Java, Sumatra, Kalimantan and Bali.

These measures were taken to keep the fuel consumption target of 46 million kiloliters on track, because as of July, data showed a possible allocation breach.

Raising the fuel price should be implemented gradually under the incumbent government of President Susilo Bambang Yudhoyono and the incoming government led by Joko “Jokowi” Widodo, according to Indonesian Institute of Sciences (LIPI) economist Latif Adam.

“The incumbent government still can act as long as it is willing to take the risk of missing its inflation target. That will release some burden on the trade balance and current account that otherwise should wholly be passed to the next government,” he told the Post.

Bank Indonesia (BI) has targeted this year’s inflation to range between 3.5 and 5.5 per cent, far lower than the 8.38 per cent last year.

In a more positive tone, BPS deputy head for distribution and service statistics Sasmito Hadi Wibowo said exports might climb from July to December as seen in an annual pattern where demand usually peaked at year-end.

“Exports may exceed $90 billion in the second half of this year and with that we may see exports reach a similar level to last year,” he said after the announcement.

Despite the more optimistic outlook, economists have also warned the rise in exports will not be sufficient to offset the losses caused by imports. The first half trade balance was largely controlled by imports compared to exports and the trend would likely continue despite possible improvements in overseas shipments.


 

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