INDONESIA FOREIGN TRADE POLICY: WHAT WE CAN EXPECT FROM JOKOWI’S SECOND TERM

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By Sebastian Sterzer

Jakarta Indonesia, Media www.rajawalisiber.com – Head of International Relations Area for the Observatory of International Trade (ARIOCI) at the National University of Lujan (UNLu) in Buenos Aires, Argentina

Aside from considering covid-19 pandemic and its economic consequences, Joko ‘Jokowi’ Widodo is likely to move forward for key policy reforms and speed up economic growth during his second presidential term (2019-2024). Indonesia’s economy has done quite well during Jokowi’s first term, even though declining global growth, and world trade. His administration has succeeded in improving the country’s business environment and keeping stable macroeconomic conditions. His infrastructure-focused policy is worthy but will need to impact the rest of the economy to step up poverty reduction.

His second term will be marked by a ongoing prominence on infrastructure and social policy. In terms of trade and commercial policy, Jokowi’s administration is supposed to implement both protectionist and liberal-reforming policies as controlling inflation. Curiously, despite a decreasing inflation trend, Indonesia’s import restrictions on key food commodities, such as rice, beef, wheat, sugar, salt, and soybeans, often drove up domestic prices. Furthermore, the high cost of logistics in this archipelagic nation similarly difficult government’s effort to bring down inflation.

The Indonesian Trade Minister Agus Suparmanto targeted three Priority Programs in 2020: 1) increasing non-oil exports to maintain the trade balance; 2) strengthening the domestic market with inflation set at around 3 percent; and 3) simplifying 18 regulations related to export-import activities.

To increase non-oil exports to sustain the trade balance, the government will focus on developing six potential sectors: 1) wood products; 2) food and beverages; 3) textiles and clothing; 4) automotive; 5) electronics; and 6) basic chemicals. To achieve this, the government will conclude several international trade negotiations with 11 countries in the near term, including the Comprehensive Economic Partnership Agreement (CEPA) of Indonesia – European Union (EU) and Turkey. Additionally, the Preferential Trade Agreement (PTA) of Indonesia-Morocco, Tunisia, and Bangladesh. Regarding the EU, the Government is cautious with palm oil issue: “we will review the draft Indonesia-EU CEPA to ensure that palm oil is not overlooked during the cooperation negotiations,” said deputy of trade minister Jerry Sambuaga, underlining Indonesia’s purpose to continue the lawsuit to the World Trade Organization over plans to limit the use of biodiesel by countries from the Eurozone.

By the other side, in its 2020 ANNUAL PRESS STATEMENT OF THE MINISTER FOR FOREIGN AFFAIRS, Ms. Retno Marsudi said two important quotes: “2019 was marked by growing protectionism, slower economic growth and global trade down to its lowest point since the 2009 global financial crisis”, and “in the midst of such situation, Indonesia consistently broadens its economic cooperation based on the principle of mutual benefit”.

Considering this, what could be Indonesia’s economic diplomacy? Well, looking for those trade agreements and regional integrations programs that could make Indonesia to get benefits to support sustainable Indonesian development, especially on infrastructure; human resources; reinforcing downstream industries; and development of frontier and outer most islands. So far, when we talk about trade agreements, Indonesian path as been like this:

 

 

For 2020-2021 period, targets for economic cooperation negotiations are the ratification of Indonesia-Australia (IA) CEPA; ratification of I-EFTA CEPA; signing of RCEP; intensifying negotiations on PTA/FTA/CEPA with African, South/Central Asian, and Pacific countries; assessment of FTA with Eurasian Economic Union (EAEU); and pushing the implementation of economic treaties as signed with partner states. Apart from this, is important to keep in mind the ASEAN-lead Regional Comprehensive Economic Partnership (RCEP), expected to be signed in the end of this year.

Regarding the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA), it was being signed in March 2019 and ratified in February 2020. It establishes a framework for Australia and Indonesia to reveal the vast potential of the bilateral economic partnership, encouraging economic cooperation between businesses, communities, and individuals.

There are key outcomes for Indonesia: in response to a specific Indonesian request, Australia has given the most liberal origin requirements for Indonesian electric motor vehicles of any Australian trade agreement. Likewise, as part of an overall skills package, Australia and Indonesia have consented to a reciprocal skills exchange, allowing people with staff tertiary level skill qualifications from both countries to obtain 6 months experience in the other’s market.

Australia has also pledged to accept up to 200 Indonesians per year to participate in 6 months work training opportunities in Australia. This will help build the capacity of Indonesia’s workforce in key sectors, including those of interest to Australian investors. Indonesia will also have an increase in the number of Australian work and holiday visas (from 1000 today to 4100 in year one, growing to 5000 over six years).

This will offer useful work experience for young Indonesians as well as help Australia to meet temporary labour requirements.

In its relationship with China, Indonesia found that Chinese foreign aid diverges from those of other countries in its tremendous direction towards infrastructure development projects.

China’s aid to Indonesia has supported bridges, roads, power plants and a limited number of railway projects — all designed and constructed by Chinese firms.

With Japan, Indonesia is a prominent economic partner, with their bilateral trade totaling US$31.5 billion in 2019. Japan is also the third largest FDI source for Indonesia, with $4.3 billion inflow recorded in the same year.

Compared with this, trade between Indonesia and India continues far away from its true potential. Also, India’s decision (2017) to raise import tariffs for crude palm oil (CPO) from 7.5 percent to 15 percent made a negative impact on Indonesian exports.

Another important trading parter is the United States. The United States Trade Representative (USTR) ruled Indonesia is no longer in the list of developing country.

The new policy has been issued on February 2020, explaining Indonesia is excluded from the exception because of the nation membership in the G20 and has a total share of world trade 0.9 percent.

However, the country’ status as a recipient country of the Generalized System of Preferences facility (GSP) is not affected. In 2019, total trade values of the two countries recorded $26.97 billion or decreased by 5.73 percent from the previous year, which was valued at $28.6 billion, with Indonesia’ exports amounting to $17.72 billion and imports $9.25 billion.

Thus, Indonesia has a surplus of $8.46 billion. Indonesia’ main exports to the US include fresh crustaceans, natural rubber, footwear, jerseys, women’s and girl’s clothing, and new pneumatic tires. While Indonesia’ main import products from the US such as soybean, cotton, wheat, starch flour residues, and non-consumption flour.

With the United Arab Emirates (UAE), Indonesia is paying a special attention. The UAE, which was Indonesia’s largest Middle Eastern investor last year, is one of many countries Jokowi’s government is approaching to secure investments into $137 billion worth of infrastructure projects.

Most of the projects are energy-related such as refineries, smelters, and power plants. By the other side, Saudi Arabia and Indonesia signed 11 MoUs during the King’s visit to Jakarta in 2017, but despite high expectations, no major investment deal was sealed.

Trade and investment ties between the two countries have continuously been comparatively small. Key exports from Indonesia to Saudi Arabia comprised motor vehicle, palm oil, tuna, rubber and rubber products, plywood, paper and paper products, textile, and garments.

Going to Africa, a Preferential Trade Agreement (PTA) negotiation with Mozambique has been concluded. It has been the Indonesia’s first PTA in Africa. Apart from Mozambique, there are stronger trade ties with Morocco and Tunisia, which will give also open opportunities for Indonesia to increase trade with the whole African continent.

There should be much more growth in the future, particularly for exports of food & beverage products, textiles, and crude palm oil.

Finally, referring to Latin America, bilateral consultations and joint commission meetings had been carried out with Mexico, Peru, Argentina, and Ecuador, as well as Jamaica and Costa Rica in the Caribbean.

These regions continue as unchartered territories for Indonesia’s products and businesspeople. In line with the increased focus on Latin America, the government signed a Comprehensive Economic Partnership Agreement (CEPA) with Chile, the first such deal with a country from the region.

The agreement will make Chile remove or significantly reduce tariffs in a wide range of areas, including automotive, furniture, palm oil, textiles, and fisheries products.

In addition to offering Indonesian businesses with access to the Chilean market, the deal will facilitate the country building a regional presence by showing other markets to Indonesian products through Chile’s trade agreements with neighbouring countries.

To conclude, international economic policy is driven by domestic economic policy concerns.

Subsequently, Jokowi’s attitude to international economic policy is but an extension of his domestic one.

The economy will remain semi-open in terms of the trade and investment regime. Jokowi seems to show a pro-international trade stance by highlighting the importance of stronger global cooperation against rising protectionism. However, Jokowi views FTAs can be observed.

The main goals are growth and development, with an emphasis on export market access. Imports should be controlled since they are undercutting local industry and productivity.

Anyway, Indonesia’s FTA CEPA with any other country or even a trade bloc is a mutually beneficial agreement for both parties. After all, there are efforts to gain potential benefits through closer cooperation between these two regional organizations. ***

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