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20 Jul 2005

International Economy

Indonesia's Lesson: Weathering the Energy Crisis

คะแนนเฉลี่ย

Indonesia is the only Asian country that is a member of the Organization of Petroleum Exporting Countries (OPEC). Ironically, this country is currently confronted with a shortage of crude and refined oil, and is feeling the pinch of relentlessly rising oil prices in world markets. Even though retail fuel prices in Indonesia rose by 29 percent as of March 2005, the government still continues to subsidize this commodity. As far as estimates go, the total subsidy provided by the Indonesian government for domestic oil prices may exceed USD10.30 billion, this year, compared to USD7.4 billion recorded last year. Thus, their government will inevitably see a higher budget deficit, further on.

Impacts of the Escalating Oil Prices

1. Falling Indonesian Rupiah ? With imports of oil at higher prices, Indonesia's trade surplus for the first quarter of this year dropped to USD5.408 billion, against the USD5.939 billion for the fourth quarter of last year. Meanwhile, the country's international reserves have fallen to USD34 billion, from USD36 billion in December 2004. As a result, the Indonesian Rupiah has plunged to Rupiah9,800 to the USD, its lowest since March 2002.

2. Economic Growth Falling Short of Target ? The Indonesian authorities expect to see their economy grow by 6 percent, this year, against the growth of 5.1 percent posted in 2004. Unfortunately, continuous surges in oil prices may cause their growth to fall below that target set by the policymakers.

Despite the economic slowdown this year, some favorable factors may help Indonesia cushion the impacts that may arise from higher oil prices. To be specific:

- Foreign direct investment(FDI) Indonesia's FDI increased by 145 percent during the first six months of this year to USD6.250 billion, in comparison to the USD2.547 billion recorded last year, thanks to the more favorable investment atmosphere following President Yudhoyono taking office in October 2004.


  • State Sector Investment in Mega-Projects - The Indonesian government has a policy of increasing investment in the construction of basic infrastructure for the country, such as roads, bridges, and other public works, which will also stimulate domestic employment and generate income.
  • Tourism in Indonesia - Tsunamis slammed into Sumatra Island, decelerating Indonesian tourism for a while. But, at present, tourism has begun to recover, particularly on Bali, where there are around 700,000 foreign tourists vacationing; this represents an increase of 6 percent over the same period of 2004, because Bali was not affected by the tsunamis that struck ((Asia)) at the end of last year.

KRC forecasts that, with the close relations between Thailand and Indonesia, the economic slowdown in Indonesia will impact Thailand in such matters as:

Trade between Thailand and Indonesia ? Indonesia is considered an important trade partner for Thailand as it is the seventh most important export market; it is also tenth among countries that Thailand imports goods from. The estimation that the Indonesian economy may slow could have possible affects on exports of Thai goods to Indonesia, causing some deceleration in the latter half of the year (H2-2005). Even so, in the first 5 months of 2005, Thailand's exports to Indonesia increased to the highest within ASEAN. Thailand's exports to Indonesia expanded 47.1 percent with the a total value of USD1,732.6 million, while Thailand's imports from Indonesia expanded by 67.3 percent, with a total value of USD1,398.4 million. This has resulted in Thailand gaining a trade surplus over Indonesia amounting to USD334.2 million.

Tourism between Thailand and Indonesia - The expensive oil situation that Thailand and Indonesia are facing, at present, is expected to deteriorate tourism between the two countries, this year. It appears that, in January 2005, travel between Thailand and Indonesia has dropped, as there were only 11,590 Indonesian tourists coming to Thailand then, representing a drop of 31.23 percent from the same period of 2004. Meanwhile, 1,170 Thai tourists traveled to Indonesia, which was a drop by 9.8 percent from the same period of 2004.

Investment between Thailand and Indonesia - Investment between the two countries is rather low and it is expected that the expensive oil situation will not be favorable to the international investment atmosphere, so investment between Thailand and Indonesia will likely slow further.

International Economy

Indonesia