Despite a 6.7% contraction in net exports in 2012, the value of Indonesia’s trade has expanded significantly over the past decade, with a doubling of exports between 2006 and 2011 to $203.50bn. Rising demand from Asian markets for Indonesia’s key commodity outputs has spurred a redirection of trade. Yet, with most foreign direct investment flowing to sectors linked to consumption, trade has been a smaller growth driver than household spending. This comes despite ASEAN-wide trade liberalisation that has encouraged conglomerates to expand their supply chains to Indonesia. By the first half of 2013, Indonesia’s 10 largest export markets accounted for 73.6% of its total exports, roughly 70% of which stay in Asia. In the first half of 2013, FDI accounted for 68.57% of total investment, while the total stock of inward FDI grew tenfold from 2000 to 2012, reaching $205.66bn. US Investment in oil, gas and mining grew 11% in the eight years to 2012, while manufacturing saw a rise of 21%. By 2012, 52.2% of US FDI was in extractive industries and 46.1% in manufacturing. As investment in Indonesia’s non-commodity sectors continues to grow, the authorities will need to expand access to credit and export finance for its small and medium-sized enterprises, which are key to reducing Indonesia’s reliance of commodity exports.
This chapter contains interviews with Muhammad Lufti, Minister of Trade; Le Luong Minh, Secretary-General, ASEAN; Sri Mulyani Indrawati, Managing Director, World Bank; Paul Wolfowitz, former US Ambassador to Indonesia, and Visiting Scholar, American Enterprise Institute; and Wishnu Wardhana, Chair, APEC Business Advisory Council (ABAC) 2013, and President Director and Group CEO, Indika Energy.