Export Ban Influence, Indonesia's Trade Balance May Record Surplus by 2017
According to Indonesia's Finance Minister Chatib Basri, the country's trade deficit will continue between 2014 and 2016 (although expecting to show an easing trend) but will turn into a surplus from 2017 onwards. One of the most influential factors that will impact on the trade balance is Indonesia's raw ore export ban, in effect as of Sunday 12 January 2014. In the short term, this ban will limit Indonesia's exports but in the long term, from 2017 onward, it will lead to high added-value exports.
The controversial 2009 Mining Law, which has been topic of much heated debate within Indonesia's business and government circles, basically bans the export of unprocessed minerals and stipulates that all mineral commodities need to be refined domestically before exporting is allowed. However, just before implementation of this new law, Indonesian President Susilo Bambang Yudhoyono signed a last-minute (temporary) revision which provides more room for the business community to adjust to the new situation:
• Miners that are committed to build processing plants (smelters) in accordance with the technical guidelines of the Energy and Mineral Resources Ministry will still be allowed to continue exporting up to 2017.
• Processed output of copper, iron, lead, iron-sand, zinc and manganese are still allowed to be exported in the next three years.
• However, tin, gold, silver, nickel, bauxite and chromium have to be refined first before export is allowed (these minerals do not go through the processing stage).
• The government will use a new and gradually increasing export tax (from 20-25 percent in 2014 to 60 percent in 2017) for those companies that continue to export processed output of copper, iron, lead, iron-sand, zinc and manganese.
The export ban in combination with the progressive export tax will limit Indonesia's exports but as more and more smelters are expected to be ready for operation within the next few years, the trade deficit will turn into a surplus. Minister of Energy and Mineral Resources Jero Wacik recently stated that "currently 66 smelters are under development and 25 are already in the final stage of construction."
The trade balance (and current account deficit) has been a serious financial weakness of Indonesia in 2013 and is partly to blame for significant capital outflows as well as rupiah depreciation. After the Federal Reserve started to speculate in late May 2013 about an end to its monthly USD $85 billion bond-buying program (known as quantitative easing), global investors pulled billions of US dollars away from riskier assets in the emerging economies, particularly those emerging economies that show weaknesses in their financial make-up such as Indonesia's wide current account deficit. This deficit hit a record high of USD $9.9 billion (equivalent to 4.4 percent of GDP) in the second quarter of 2013 but has eased to about 3.5 percent of GDP by the end of 2013. Bank Indonesia aims to lower the figure further to below 3 percent, which is considered a sustainable level.
Further Reading:
• Indonesia's Mining Export Ban Impacts on Current Account Deficit in 2014
• Indonesia Might Delay Implementation of Mineral Export Ban by 3 Years
• Go-Ahead for Indonesia's Controversial Ban on Unprocessed Mineral Exports
• Indonesia Studying Temporary Exemption for Export of Raw Minerals
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