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... imports actually declined somewhat in 1998 compared with 1997). The decline in imports is across the board, though manufacturing sectors such as transportation equipment and telecommunications equipment were particularly affected. Imports are classified into broad economic categories: consumer goods, raw materials and intermediate goods, and capital goods (Table 12).
The data reveal that there was a much more severe contraction in imports of capital goods, raw materials and intermediate goods than of consumer goods. Imports of food for household consumption rose by 38. 5 % year on year. This reflects the efforts of donors and the government to maintain food supplies in the face of the economic crisis and the drought that adversely affected rice production. For consumer items other than food, however, imports fell very sharply. On the basis of these data, one can surmise that food imports had the highest priority compared with any other category of imports. Overall food and beverage imports still fell by 8. 9 % in 1998 compared with 1997, but much of this reduction was a result of lower demand for income elastic food and beverage products.
Imports of rice were drastically increased in 1998, so that overall cereal imports also expanded despite a drop in the importation of wheat. The economic crisis brought about a collapse in demand for passenger cars (classified as capital goods) and other transport equipment used by households. The sharp decline in imports of capital goods excluding transport equipment reflects the fall in private investment demand. The compression of imports of raw materials and intermediate inputs for industry except for processed food and beverages is also apparent. These indicators reflect the severity of the economic crisis and the overall decline in production, particularly in manufacturing.
The decline in capital goods imports will have a lagged negative effect on the growth of non-oil / gas manufactured exports, if past experience is any guide (James 1997). The capacity of manufacturers to expand production (and exports) in the near-term is sufficient to permit a recovery of exports to pre-crisis levels. However, once the capacity is reached, new investment (and expanded imports of capital equipment) will be vital to sustaining export growth. In order to speed this process, it will be essential to maintain open policies towards investors and to move forward with trade liberalization. Tariffs have been reduced to zero on many machinery items that are used in export-oriented manufacturing (e. g. , textile machinery) but remain rather high on intermediate inputs and final goods (between 20 - 30 %).
Imports into the export processing zone in Batam Island and bonded zones are excluded from the data presented in Tables 8 through 12. Bank Indonesia (March 1999) reports that imports into Batam Island and the bonded zones fell from $ 7, 485 million in 1997 to $ 6, 372 million in 1998 (a decline of about 15 %). In the section analyzing key export industries that follows, there will be additional discussion of import compression at the industry level. Evaluation of Export Performance in Major Industries Textiles & Apparel.
An attempt is made to estimate the value of exports of textile and apparel (including PEBT) in 1998 compared with 1997. It is notable that even not taking into account PEBT items, exports of textile products grew by nearly 5 % (Table 13). Exports of textile yarn and woven synthetic fabrics (the two largest categories of exports among textiles) expanded enough to offset declines in less important categories including woven cotton fabrics. Apparel products, however, performed less well, with growth exclusive of PEBT items of 9. 4 %. Of the major clothing exports (excluding PEBT), only SITC 841 had positive growth. As PEBT textile and apparel items are estimated to have increased by nearly 6 % in 1998, overall exports in textiles and apparel very nearly were maintained at the 1997 level despite the economic crisis.
It is possible that overall production and employment in textiles and apparel were maintained more closely to levels preceding the crisis than in other industries. However, it is to be noted that production of yarn and synthetic fiber is less labor-intensive than is production of apparel. Hence, it is premature to come to any conclusions regarding the overall level of employment in these industries based on these preliminary estimates. Import trends in textiles and apparel may provide some additional insight into the performance of exports in these sectors. The imports of raw materials, intermediate inputs and capital goods used in the textiles and apparel sector (although not exclusively) declined in 1998 (Table 14). Cotton is by far the most important imported raw material and imports declined by about 6. 7 % in 1998.
All raw materials used in textiles and apparel fell by about 5. 7 %. Intermediate inputs (- 11 %) and capital goods imports (- 6. 7 %) fell by slightly more. However, these declines were far less serious than for many other sectors and suggest that textiles and apparel remain relatively healthy despite the crisis. It is notable that imports of final apparel, textile and leather products declined by a little over 24 % (Table 15). Most of these items face relatively high tariffs (15 - 30 %).
The decline in imports reflects weak consumer demand. The weakness in consumer demand possibly led producers to concentrate more on export markets in 1998. Hence, exports remained near pre-crisis levels. Wood Products. Wood products have been among the most important of Indonesia's non-oil / gas exports.
However, in recent years there has been a significant falling off of exports of plywood and veneers, by far the most important single non-oil manufactured export at the SITC 2 or 3 -digit level (Tables 6 and 7). In 1998, it appears wood products continued to experience negative growth, even when one takes into account all forestry products exported under PEBT. The continued collapse of plywood exports in 1998 appears to be principally due to lower international prices. The volume of plywood exports actually increased (by 4. 5 %) over 1997 and although this is below 1996 export volume, it indicates that potential for recovery of exports in value terms is possible if prices improve. Wood products are not import-intensive and, if domestic supplies of raw materials are sufficient, should be among the earliest export sectors to recover from the impact of the crisis once external demand improves. The doubling of PEBT exports in 1998 to over $ 1. 5 billion (Table 16), makes it hazardous to speculate about the actual performance of other manufactured wood products such as wood furniture.
The prospects of this sector could improve with a rationalization of policies to ensure greater incentives to replant trees and to harvest logs on the basis of highest valued uses. The prohibitive export taxes on logs and simply worked timber have discouraged both replanting and efficient allocation of the raw material. A breaking up of the vertical integration between plywood mills and forest concessions would encourage a greater role for market forces to determine the allocation of these increasingly scarce resources. Increased public awareness of the performance of forest concessionaires would also tend to strengthen pressure for effective enforcement of environmental regulations and replanting requirements. Electronics.
Electrical machinery has been one of the fastest growing export sectors in recent years. The sector is heavily dependent upon imported components and therefore is likely to be particularly vulnerable to the impact of the crisis. Electronic and electrical machinery exports excluding PEBT fell in 1998 compared with 1997, by over 22 % in the case of consumer electronic products and by about 4 % for electrical machinery. However, including PEBT the decline was a little under 10 % (Table 17).
By far the most important export in value terms in 1997 is sound recorders (SITC 762). However, exports contracted by nearly 40 % in 1998, leaving telecommunications equipment and parts (SITC 764) as the largest item (exclusive of PEBT). It is interesting to note that imports of SITC 764 (Table 11 above) were among the most savaged import items. The decline in imports had less impact on exports in telecommunications equipment than one would expect. It appears that the brunt of the import reduction was related to the decline domestic demand rather than export production, as exports fell by less than 3 % (exclusive of PEBT). Moreover, it is also interesting that electrical machinery exports fell by so little.
The presence of affiliates of multinational corporations with access to strong international marketing networks and imported components from multinational parents may be a possible explanation. Unlike auto companies, electronic firms are outward-oriented and are granted only modest tariff protection. Further research may shed additional light on the performance of the electrical machinery industry. Rubber. Rubber-based products have traditionally been a major export item. The decline in natural rubber is purely due to reduced international prices as the volume of rubber exports rose by over 19 % in 1998 compared with 1997.
The decline in natural rubber exports accounts for most of the decline in overall rubber-based exports in 1998 (Table 18). Again, this implies that a rebound in commodity prices will allow exports to recover quickly in these sectors. Footwear & Leather. Footwear and leather products are another labor-intensive export that underwent booming conditions in the early to mid-nineties. Footwear exports apparently declined in 1998 (Table 19), a setback to a sector that had performed relatively well up until 1996.
Given the large amount of unclassified items in PEBT, it is difficult to make a definitive statement based on these data alone. However, discussion with a member of the Footwear Exporters Association in May 1998 revealed that footwear exporters were having difficulty in financing imported components and in obtaining export insurance. The financial position of footwear manufacturers may have been an underlying reason for declining export performance in 1998. Toys. Exports of toys and related items appear to have fallen by over 12 % in 1998 even when including PEBT items (Table 20). These miscellaneous manufactured goods are generally labor-intensive but also require imported inputs.
One problem is that Indonesia has maintained high tariffs of 25 % on childrens toys and games and on many items of sporting goods. The development of exports has been a secondary concern to producers who have enjoyed a protected local market where demand was booming until the crisis struck. Reducing tariffs on these items would encourage producers to seek to cut costs and gear production more towards export markets. Direction of Trade: Impact of the Asian Crisis Non-...
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