One of the economic problems that called for the Government’s extra attention was to minimize deficit of trade balance. This was not an easy task amidst low global demand for products and contracting economy in China, America and Europe. It seemed reasonable that the Government predicted Indonesia was still be having trade deficit through Semester II-2013 especially in the oil gas sector.
Trade Minister Gita Wirjawan predicted deficit in trade balance would increase to USD 5 or 6 billion in 2013. During first semester of 2013, deficit of trade balance was posted at USD 3.3 billion on account of import of oil gas 5.8 billion and surplus of non oil gas commodities USD 2.5 billion.
In case of the non oil-gas sector it was still predicted to be in surplus in this Semester II which was estimated at USD 2,3 billion. Minister Wirjawan added on that reduce deficit from oil-gas import would be seen after the Government increased price of subsidized oil. On the other hand the Government had adopted the policy of putting added value on exported mining products.
However, the policy would only be felt of its effect after a long time, considering stagnation and contraction of global economy including Europe, China and the USA. Those were the factors which would reduce deficit and safeguard Trade Balance of Semester II/2013. However it should be underscored that the prevalent factor of the trade balance was oil-gas, especially to consider that the Government had imported USD 13 billion worth of oil in Semester I/2013.
Based on the prediction that Trade Balance would increase in Semester II this year, the Government would strive to downsize deficit by jacking up export. The effort to prevent deficit from swelling in Semester II this year was by applying Cost Insurance Freight [CIF] system and Freight on Board [FOB] system i.e. export process managed by importer country. Change of FOB to CIF would be effective as per August and to be reported in October.
Deficit was continuing to happen as shipment was on FOB basis. In June 2013, data of BPS had it that Indonesia’s trade balance was posted at USD 846.8 billion. That deficit was because Indonesia’s export was only worth USD 14.74 billion against import which was posted at USD 15.5 billion. Accumulatively through January-June 2013 posted deficit of USD 3.31 billion, while export was USD 91.06 billion and import USD 94.36 billion.
The breakthrough in export procedure was expected to jack up Indonesia’s export amidst pressures of trade balance in the last few months. As knows import procedure was already on CIF basis, while export was on FOB basis.
The principle of FOB procedure was export only included value up to the stage of loading on board while the CIF system calculated value of goods, shipment cost, till goods delivery. Apparently export registering by CIF was more valid.
For the initial stage, most probably CIF would be applicable on small scale or limited to certain commodities like export of CPO, cacao, rubber and coal. Preparations for change of procedure from FOB to CIF was beginning to be discussed at directorate general Level.
Implementation of the CIF system would overcome deficit in trade balance which was the culprit of troubled current transaction. It was believed that the CIF method would increase export value by USD 5-10 billion till end of year and cover up deficit in trade balance of the last six months. The inclusion of shipping, insurance and banking sectors in calculation was believed to minimize deficit in current transaction.
All business players had no objection to excise this new method after signing of MoU on the application of CIF with the Government on February 2013. For over 5 months business associations together with the Government had been managing data of product and transportation method for product to be exported by CIF method. Buyers abroad had no objections to the application of the new method although they were accustomed to using FOB method when buying products from Indonesia.
Ship liners would focus attention on transporting commodities of higher sales value like CPO and coal for the early phase of application of the CIF method. This method would be good catalyst for the shipping industry and had the potential of offer profit of Rp150 trillion each year. The change of trading scheme from FOB to CIF would jack up growth of export-import load transported by Indonesia flag carriers up to 25% by end of 2014.
However the Association of Indonesian Coal Miners stated that application of trading system depended on the agreement between buyer and seller. Indonesian exporters could not force application of CIF system if buyers demanded application of FOB system. For that matter the Government, in this case the Ministry of Trade must make approaches to this type of buyers to convince them of the positive side of the new system.
About accusations that the CIF system was but a trick to hide export failure, was denied by the Ministry of Trade Gita Wirjawan. According to Wirawan, the main objective of export recording scheme was involve ship liners, insurance agencies and financial institution in Indonesia in overseas trading activities, although this new scheme could only be expected to jack up export value and turn trade balance from deficit to surplus.
In the end there was no reason for export not to use the services of financial insurance and domestic transportation. To illustrate, if the new scheme of export recording had been put in the last 5 months of 2013, state’s income from export could have soared to USD 8 billion. This was due to extra income of 5%-10% from the services sector, i.e. insurance and shipping of local liners.
There would be increase by calculation, but the most important thing was increase of export it self in reality. It seemed right if the National Export Development Board, the Ministry of Trade conducted annual meeting with the heads of provincial trading dept all over Indonesia and Heads of the Regional Export Traing Centers to call out regional Government to increase export of products of adde value.
The forum was meant to synchronize perception and common understanding of export policy makers in the capital city and in the regions. Through this from many parties were expected to take benefit, especially the provinces which were short of information related to export development program of the Dir. Gen Pen. This forum could also form a sound working network between the central and local government in the effort to promote export nationwide.
In this case the strategy of product diversification was exercised by adding more products to the 10 premium commodities of non oil gas export category. The products to be developed were products of high added value based on creative economy. The product development was being exercised by way of design development, packaging design, branding and distribution.
It was important to pay attention to small business [UKM] to promote their export capacity. Contribution of the UKM sector to national export from 1998 to 2012 was on the average still less than 20%. And yet according to the Central Board of Statistics [BPS], of all business sectors, small business was prevalent [99.99%].
Some of the handicaps encountered by UKM were measly capital, workers’ low competence, poor access to banks, poor mastery of technology, lack of information and poor access to the global market. Surely some small business were able to penetrate the global market, but their position was vulnerable as they were uncompetitive.
Meanwhile loan to Deposit Ratio of Indonesian banks was still around 75% so the potential of financing increase could be significantly increased. By opening maximum accesss to the UMK sector, export could be promoted to the maximum.
In this case the measures taken by Exim Bank who constantly enhanced the role of UKM to promote export was praiseworthy, as specified in Article 4 point of the law no 2/2009 on the Indonesia Export Financing Body [LPEI/Indonesia Exim Bank].
From 2010 to 2012, financing for small business in Indonesia by Exim Bank was Rp636 billion in 2010, Rp 1.739 trillion in 2011 and Rp2.352 trillion in 2012. For 3 years the average growth of financing for UKM sector in Indonesia by Exim Bank was 134.89%. Indonesian premium commodities financed by Exim Bank were among others: fruits and vegetables, fish products, forestry products, garments, furniture, palm, rubber, and auxiliary products of the oil-gas industry and mining industry.
Since 2009, Indonesia Exim Bank had been applying 3 methods in financing UKM exporters. The first method was business-linkage financing strategy, i.e. the strategy of development financing to UKM by enhancing business relations between core corporate and supplier/vendor/contractor of UKM scale.
The second method was re-financing and co-financing strategy i.e. financing of UKM through services of banking network and Banking Financial Institution [LKB] and Non-Bank-Financial Institution [LKBB] with financing portofilio to export-oriented UKM.
The third method was direct financing strategy i.e. direct financing by Indonesia Exim Bank to the small business sector individually or collectively. By this method, Indonesia Exim Bank would guide UKM exporter so they could be more competitive and strong.
By the three methods, Indonesia Exim Bank expected UKM exporters to grow and propel Indonesia’s export. Indonesia Exim Bank was hoping to be involved more intensively in developing potential UKM exporters to promote Indonesia’s export.
Today Indonesia Exim Bank UKM financing network had four outlets, i.e. the UKM Financing Division at the Jakarta Headquarters, the Surabaya office, Medan office and Makassar Office.
Business News - August 21, 2013