Export Ban on Unprocessed Minerals Temporarily Pressures Trade Balance
Although the ban on the export of unprocessed minerals, which is set to start on 12 January 2014, is expected to result in a direct revenue loss of USD $4 billion in 2014 due to a decline in mineral exports, Deputy Finance Minister Bambang Brodjonegoro believes that from 2016 onward a trade surplus can be recorded in Indonesia's minerals sector. In 2014, Indonesia's minerals sector may show a USD $10 billion trade deficit. But exports of processed minerals may grow from USD $4.9 billion in 2013 to USD $9 billion in 2015.
Last week, the nine fractions in Commission VII of the Indonesian parliament (DPR) approved Law No. 4 of the 2009 Mining Law (on Minerals and Coal Mining), which bans the export of unprocessed minerals, forcing miners to build (joint) smelters. The new law aims to increase the value of exports while reducing the country's dependence on raw commodities, thereby becoming less vulnerable to price downswings on the international commodities market.
The expected minerals trade deficit in 2014 and 2015 is expected to ease and change into a surplus by 2016 as more smelters start production from 2014 onward. Currently, 28 new smelters are under construction.
The export ban on raw minerals will also temporarily pressure the country's current account deficit. This deficit has been a big concern to most investors although eased from USD $9.8 billion in the second quarter of 2013 to USD $8.4 billion in the third quarter.
Further Reading:
• Go-Ahead for Indonesia's Controversial Ban on Unprocessed Mineral Exports
• Indonesia's Current Account Balance Improved in Q3-2013
• Indonesia's October 2013 Trade Surplus Provides a Glimmer of Hope