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16 Feb 2010

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Thai Exports to Indonesia: Improving with AFTA and Indonesia's Economic Growth (Business Brief No.2762)

คะแนนเฉลี่ย
This year is an important one for many ASEAN liberalization agreements that have been or will be implemented, e.g., the AFTA (ASEAN Free Trade Area) and ASEAN-China FTA, on which tariffs applied to normal track goods have been reduced to duty-free status since January 1, 2010. Then, tariff reductions per the ASEAN-India, ASEAN-South Korea and ASEAN-Australia-New Zealand FTAs will begin later this year.
Within the AFTA agreement, we should closely watch the Indonesian economy that is the largest in ASEAN. Because Thailand and Indonesia are broadly part of the same production chains, we are also key trade partners where goods and raw materials are traded for domestic and export use.
KASIKORN RESEARCH CENTER (KResearch) holds the view that 2010 will be a good year for Thai goods to expand into ASEAN because of the AFTA zero-tariff benefits. Thailand's exports to Indonesia are vital to us because Indonesia is the largest ASEAN economy and has the largest population in ASEAN, as well as outstanding economic growth that is continuing steadily this year. This leads to the prediction that Indonesia's consumption will also rise along with their thriving economy. Thailand exports consumer products, raw materials and intermediate goods for further production that will receive substantial advantages from the AFTA tariff reductions on automobiles and parts, household appliances, food, chemicals, plastic products, etc.

It is evident that Indonesia's economy is improving gradually. The economic stimulus measures being implemented via infrastructural projects will boost consumption and investment in Indonesia. The AFTA supports exports and foreign direct investment, which should be favorable to Indonesia's economic growth. However, that growth and the possibility of rising commodity prices may result in higher inflation. Therefore, we expect that the Indonesian authorities may decide to raise interest rates in 2H10 to curb inflation. This may affect business costs and pressure domestic consumption slightly, but we forecast that Indonesia's economy will, this year, grow even more than in 2009, and will help Thailand's exports to Indonesia to resume growth.

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