Trade & Investment
From The Report: Indonesia 2019
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Although Indonesia’s export receipts hit a five-year high in 2018, imports surged as the country moved to deliver a massive infrastructure development programme, bringing the trade deficit to an all-time high after three years of surplus. The country remains dependent on raw commodities for much of its export revenues; global commodity price volatility has weighed on the trade balance in recent years, while lower demand for Indonesian exports has further dampened the outlook. Foreign direct investment (FDI) inflows also slumped in 2018 after recording five years of consecutive growth, with global emerging market jitters and Indonesia’s upcoming presidential elections affecting investor sentiment. Recent reforms to prevent capital outflow from China have further weighed on FDI growth, highlighting the importance of fostering stronger trade and investment ties with smaller partners, as well as leveraging economic strength in major multilateral free-trade agreement negotiations. This chapter also contains interviews with Enggartiasto Lukita, Minister of Trade, and Thomas Lembong, Chairman, Indonesia Investment Coordinating Board.

Articles from this Chapter

Overview

Incentives for growth: New free trade agreement negotiations and investment reforms are set to accelerate the economy
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Although Indonesia’s export receipts hit a five-year high in 2018, imports surged as the country moved to deliver a massive infrastructure development programme, bringing the trade deficit to an all-time high after three years of surplus. The country remains dependent on raw commodities for much of its export revenues, and global commodity price volatility has weighed on the trade balance in recent years, while lower demand for Indonesian exports has further dampened the outlook. Foreign…

Interview

Close ties: Enggartiasto Lukita, Minister of Trade, on strengthening traditional trade relations while pursuing new partners
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Interview:Enggartiasto Lukita How will the Regional Comprehensive Economic Partnership (RCEP) benefit Indonesia? ENGGARTIASTO LUKITA: The RCEP consolidates all existing ASEAN+1 free trade agreements (FTAs) with China, South Korea, Japan, Australia, New Zealand and India in order to avoid complications arising from multiple existing FTAs. The deal would provide open market access to 15 countries. As such, the RCEP could potentially improve Indonesia’s GDP by 0.06% over the next 10 years,…

Analysis

Partnering up: New agreements are expected to bring stability amid changing international trade trends
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Indonesia has made significant progress in expanding trade relationships with two major trade partners under the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) and the Indonesia-European Free Trade Association Comprehensive Economic Partnership (IE-CEPA), with both deals set to reduce trade barriers and provide new investment opportunities for foreign businesses in Indonesia. Against a backdrop of increased US and global protectionism, these two agreements demonstrate…

Interview

Greater openness: Thomas Lembong, Chairman, Indonesia Investment Coordinating Board, on the shift towards regional and global production chains
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Interview: Thomas Lembong How do you correlate the vision for an open economy with the revisions to foreign investment laws? THOMAS LEMBONG: Indonesia has never made any revisions that move backwards; they always move towards greater openness. The president has successfully shifted the paradigm towards regional and global production chains. Greater openness helps local industries because they need to attract international interest. However, ratifying revisions to the Negative Investment List (DNI)…

Analysis

Neat package: Reforms aim to simplify foreign investment procedures
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Foreign direct investment (FDI) inflows into Indonesia reversed a five-year trend in 2018 when they contracted for the first time in five years, with total estimated FDI inflows estimated to be down nearly 9% year-on-year. The country is facing several challenges as it seeks to boost investment – outward investment from China has been slowing as the country moves to reduce borrowing and capital flight, and despite ongoing efforts by the government of Indonesia to improve the ease of doing…

Overview

Global village: Medium-term prospects suggest globalisation will continue for the foreseeable future
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Decades of growth in trade and foreign investment have made the economies of the world more interdependent than ever before. This trend has been reinforced by the steady liberalisation of international trade and investment at the bilateral, plurilateral and multilateral levels. National economic specialisations, and regional economic and political integration, have broadly proceeded in a single direction since the 1980s. On aggregate, emerging markets have become the main drivers of growth around the world. Limitations Despite the apparent progress of trade and investment liberalisation, multilateral negotiations aiming for further…