War in Ukraine could bring windfall to Indonesia’s balance of trade

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JAKARTA (The Jakarta Post/Asia News Network): The Ukrainian and Russian crisis is expected to have a positive impact on Indonesian trade, with most of the country’s exports benefiting from soaring commodity prices.

Indonesia’s main exports include crude palm oil (CPO), coal and metals such as aluminium, copper and nickel, all of which saw price spikes in the weeks following the outbreak. Russian invasion of Ukraine.

The two Eastern European countries are also major exporters of coal and these metals. At the same time, Indonesia is a major importer of crude oil and certain foodstuffs, such as wheat and soybeans. The two Eastern European countries are also big on some of these products.

“It is the consequence of becoming a net exporter of raw materials. Despite rising oil prices, we are still winning amid the current crisis in Eastern Europe,” said David Sumual, chief economist at Bank Central Asia (BCA), Indonesia’s largest private lender. , Friday, March 11.

Global commodity prices have risen this year as the global economy recovers from the Covid-19 pandemic, but the price spike has been exacerbated by war raging in Eastern Europe.

Prices for nickel, coal and aluminum, as well as agricultural commodities like wheat, hit multi-year highs, with some hitting all-time highs.

Coal prices topped US$439 a tonne on March 8, a fivefold increase from a year ago, according to data from Business Insider. The same data also shows that the CPO hit $1,939 per ton on March 1, almost double the same time last year.

These two products alone account for about a quarter of Indonesia’s annual exports. Along with the minerals surge, oil prices have risen above $130 a barrel, double the level at the start of the pandemic, as many fear Western sanctions on Russian oil and gas could disrupt global supplies.

Josua Pardede, the chief economist at private lender Bank Permata, agreed with David, saying the price spike had affected both Indonesia’s main export and import commodities, but the effect remained manageable.

About 60% of Indonesia’s domestic oil consumption came from imports, which meant that rising oil prices would widen the country’s oil deficit. Moreover, imported raw materials have also been hit by soaring commodity prices, which would affect the domestic manufacturing industry.

“Overall, the impact is mixed, but the plantations and mining sectors remained positive. So we could still gain some advantages. It’s still good for the state budget and the current account deficit,” Josua told The Post on Friday.

An economist from Moody’s Analytics said in a statement on March 8 that the dispute has also affected vegetable oil prices, as soaring oil prices have led many countries to switch to biofuels.

This could put additional pressure on the already tight edible oil market. A decline in soybean and rapeseed oil production, as well as Indonesia’s recent domestic market obligation (DMO) policy on palm oil, are expected to complicate matters.

The executive director of the Indonesian Palm Oil Association (GAPKI), Mukti Sardjono, said on Friday that “the government must judiciously regulate both the export and domestic use of palm oil to maintain national trade balance.

Credit rating agency FitchRatings said most Asia-Pacific countries faced external downside risks related to the Ukraine crisis, as most of these countries were net importers of energy. exception of Mongolia, Australia and Malaysia.

At the same time, many Asia-Pacific countries also had relatively strong external positions, with either current account surpluses or modest deficits cushioning commodity price spikes.

“The impact of turbulence on the energy market following the Russian-Ukrainian conflict […] differs significantly from ruler to ruler, but overall is likely to be a headwind for the region,” FitchRatings said.

The price spike could also trigger increased subsidy spending in Asia-Pacific countries with a history of price stability, such as Pakistan, Malaysia, India and Indonesia.

FitchRatings also noted that the Covid-19 pandemic has eroded many Asia-Pacific countries’ buffers from rising commodity prices. Yusuf Rendy Manilet, a researcher at the Center of Reform on Economics (CORE), said if soaring global inflation eventually leads to a hike in benchmark rates, Indonesia would be better prepared than before.

He said Indonesia now had larger foreign exchange reserves than when the US Federal Reserve suffered a tantrum in 2013, especially with Indonesia running a trade surplus in recent months.

As commodity prices increase, Indonesian exports will increase even more, creating better stability to respond to soaring import prices.

Foreign ownership of government bonds also fell to its lowest level in a year, reducing the country’s risk in the event of capital outflows. Moreover, Bank Indonesia (BI) still has a considerable amount of “ammunition” to keep the rupee stable.

“Will a massive depreciation hit Indonesia? Given these elements, it is highly unlikely,” said Yusuf

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