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Nation Must Review Its Trade Pacts, Kadin Says

Jakarta Globe, Indonesia

Nation Must Review Its Trade Pacts, Kadin Says

2 September 2012

The Indonesian Chamber of Commerce said that the nation is not yet ready to enter into a trade pact known as the Comprehensive Economic Partnership Agreement with another country because deficits are widening in Indonesia’s trade balance.

Didik J. Rachbini, head of the Institute for Economic Research and Development (LP3E) at the Indonesian Chamber of Commerce and Industry (Kadin), said in an interview with BeritaSatu TV in Jakarta on Friday that five years after Indonesia signed free-trade agreements, the country has been posting trade deficits with its trading partners.

“The government must review its trade policy with other countries and with other regions,” he said. “Free trade agreements are causing us to lose money.”

Indonesia’s trade deficit in June widened to $1.3 billion, a record amount. That brought the trade deficit to $2.29 billion in the second quarter, according to central bank data.

For the current account — the broadest measure of trade — the deficit widened to a record $6.9 billion in the second quarter, or equivalent to 3.1 percent of the country’s gross domestic product.

Much of this was contributed by slowing demand for Indonesia’s main commodities such as coal, crude palm oil and rubber.

Didik said that the government and the central bank were unlikely to review the trade policy as they were more focused on boosting economic growth to meet the target set at 6.8 percent in 2013.

Indonesia needs to review trade agreements with China and Japan, and also as a member of the Association of Southeast Asian Nations and its trading with China, Didik said.

According to the Industry Ministry, Indonesia’s exports to China from 2007 to 2011 increased by 19.6 percent while imports from China in the same period grew by 35.2 percent. As of June this year, trade with China remains the biggest deficit for Indonesia, at $4.05 billion.

Indonesia’s exports to China include metals such as iron ore as well as thermal coal that is used to fuel electricity generators. Chinese shipments to Indonesia include clothing, electronics and processed food.

Within Asean, Indonesia posted a $3.1 billion trade deficit with Thailand, the biggest among Asean’s 10 members. However, Indonesia posted a surplus of $1.28 billion with Malaysia. Overall in the Southeast Asian region, Indonesia posted a deficit $727.6 million.

Indonesia has the biggest economy in Southeast Asia and has the second-fastest growth, after China, in the Group of 20 nations. The economy last year grew 6.5 percent, which was the fastest pace since 1996.

Exports accounted for about 25 percent of Indonesia’s economic activity last year, while consumer spending accounted for the lion’s share, at about 60 percent.