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... Oil/Gas Exports. The impact of the East Asian economic crisis on the direction of non-oil / gas exports is not simple. As one would expect, there has been a sharp decline in exports to slumping economies such as Japan and Korea. In fact, Japan has, until 1998, been the largest single national market for Indonesia's non-oil / gas exports (Table 21). The sharp drop of non-oil / gas exports to Japan (- 23. 1 %) and Korea (- 17. 5 %) contrasts with the relatively good performance in Singapore (11 %) and China (10. 7 %).
However, non-oil / gas exports fell by 16. 8 % in the Philippines. In the case of Taiwan there was a small increase of about 3 %. Non-oil / gas exports also grew by 4. 8 % to Hong Kong despite its recession. And in the case of Thailand, such exports grew by over 31 % in 1998. What explains the sharp rise in exports to Thailand? One possibility is that substitution of imports from high quality and cost to low cost and quality is taking place.
For example, Thai consumers may be switching from high quality European products to cheaper items from nearby sources of supply. A parallel study of Thailand's trade response to the crisis will attempt to analyze this issue further. In looking at trade with major regions, there are also some interesting developments. Non-oil / gas exports to ASEAN member countries rose by over 7 % and the share rose by almost 2 percentage points (Table 21 bottom panel). Despite tariff preferences, intra-ASEAN trade remains smaller than trade with four Northeast Asian economies: Hong Kong, Japan, Korea and Taiwan.
However, in 1998 there was a sharp decline in the share going to the four. Unfortunately, information on detailed commodity trade flows with partners is not yet available. Another interesting contrast is between the EU and NAFTA. In the former there was a decline in non-oil / gas exports.
In the case of NAFTA, growth was minimal, despite the robust US economy. It is likely that much of the non-oil / gas exports to Singapore are not consumed there but are transshipped to other markets, including the USA. Hence, the growth of non-oil / gas exports to NAFTA is probably underestimated. Singapore does not publish statistics on trade involving Indonesia, thus, it is not easy to reconcile differences in trade estimates provided by Indonesia and its trade partners in North America. Non-Oil/Gas Imports. Import compression in Indonesia resulted in negative import growth in 1998 in the case of almost every major trading partner (Table 22).
The exception is Vietnam and this is probably because of the drought-induced rise in Indonesia's demand for imported rice. In the case of Thailand, imports fell by relatively little, again probably because of rice imports. Imports of non-oil / gas products fell most sharply in the case of India, followed by Sweden, Japan, Italy, Malaysia, France and Brazil (all over 40 %). It is not yet clear why imports from these locations fell by the greatest amount. For example, why did imports from Germany fall by only 10 % but those from some other EU members fall by a much greater percent?
Again, one suspects that the substitution of cheaper, lower quality and nearby imported goods for expensive, high quality and distant items is occurring. However, this explanation would seem in conflict with the sharp drop in imports from India. Hence, until detailed commodity trade statistics by partner become available it is difficult to arrive at any conclusions. Examination of imports of non-oil / gas products by major region reveals that import compression was lower for imports from ASEAN than from EU, NAFTA or NE Asia. In the latter case, despite geographic proximity, imports fell by the greatest amount. This may be because of the concentration of imports in intermediate components, machinery and capital goods sectors that have been hit hard by the crisis.
Recent Trends in Non-Oil/Gas Exports and Imports Monthly reports on exports and imports in 1999 have been used to compile tables on the performance of non-oil / gas exports and imports during the first six months of 1999. Non-oil / gas exports continued to decline (year-on-year) during this period by 12. 8 %. However, it appears that the bottom was hit in early 1999, with the level of non-oil / gas exports improving by almost 16 % in the second quarter compared with the first (Table 23). Non-oil / gas imports show a similar pattern to exports, with growth in the second quarter over the first quarter of 1999 reaching 10 % (Table 24). The sharp decline in both non-oil / gas exports (- 22 %) and imports (- 16 %) in June 1999 probably reflects the fact the country was in the midst of its first free election campaign in many years. The surplus in non-oil gas trade is slightly lower in the first half of 1999 ($ 7, 683. 2 million) than 1998 ($ 8, 660. 5 million).
Are there signs of recovery? GDP data released for the first quarter of 1999 are positive, indicating that the recovery is beginning. There are several other positive signs including the strengthening of the rupiah following the election to the 6, 500 level, falling interest rates and rising stock prices. However, the rupiahs rally ended with the Bank Bali fiasco and the currency had fallen to around 7, 650 per US dollar in late August. Hence, with the continuing political uncertainty (the new President and Vice-President have yet to be selected) it is too early to confirm that a sustained recovery is underway.
Boediono (1999: 1) points out in a recent speech, the recovery in oil prices is bolstering oil and gas exports in 1999 compared with 1998, however, non-oil exports remain weak. External Problems Threatening the Recovery. The recovery of non-oil / gas exports is an essential condition for a sustained recovery. This does not necessarily mean a return to the booming growth of the pre-crisis period. However, it is true that a return to positive economic growth for a prolonged period will require a rising level of exports to support debt servicing and to allow investment to recover. In this context it is worth mentioning external problems that may hinder a rebound in exports.
The first problem is the increasing tendency of countries to make use of antidumping as a remedy to surging imports. Indonesian exports have been threatened by antidumping duties in recent years in the EU, North America and Australia (Train and Bosworth, 1999). However, it is also true that antidumping actions have been instigated within ASEAN as well. This tendency threatens almost any export that begins to gain market share. Hence, greater discipline over use of antidumping is clearly in Indonesia's interest. In addition to the antidumping problem, other types of hidden protection are increasing.
In particular, use of restrictive rules of origin in preferential trading arrangements is an issue that has not been adequately addressed by the multilateral trading system. A recent study of NAFTA rules of origin governing trade in textiles and apparel reveals that trade diversion from Indonesia and other East Asian textile exporters has taken place on a large scale (James and Umemoto 1999). There is as of yet almost no control over the use of rules of origin at the multilateral level. These rules may be used for purposes of commercial policy rather than simply to designate country or territory of origin.
Conclusions The preliminary nature of the data and the problems that arise in attempting to allocate exports to broad industry categories because of the large amount of exports in the PEBT category caution me from making any strong conclusions regarding differences about export performance at the industry level. However, it is clear that several important export sectors aside from oil and gas were adversely affected by low international commodity prices. There is also some evidence that key export sectors in manufacturing including textiles and apparel, wood, and electrical machinery have good potential on the supply side to resume growth in the short-term. These sectors have either avoided the severe import compression affecting many other sectors or have resilience due to the presence of multinational enterprises. In the case of wood products, a recovery of international prices associated with a broader recovery of domestic housing demand could help exports return to pre-crisis levels.
However, the domestic supply of raw material in wood-based industries may not be sustainable at present levels. The collapse of imports of capital goods is clearly linked to the fall in investment demand in the private sector. The existence of excess capacity will allow for some growth to take place without much new investment. However, a stagnation of capital goods imports may constrain growth of non-oil exports after a year or so. It is encouraging that Indonesia has continued to implement tariff reform and to remain open to foreign investment. There is still much to be done to reduce barriers to both international and domestic trade in Indonesia.
Indonesia also needs to work hard to maintain and improve its market access in the international markets. Threats to market access in the forms of contingent protection need to be urgently addressed in this context. It is too early to proclaim that Indonesia is on a V-shaped recovery path. It is recognized that all major parties are committed to the continuation of current policies of openness and structural reform. However, implementing effective policies and making the institutional reforms necessary will be difficult. The in-coming government will need to work with skill and determination if the recovery is to be sustained.
Indonesia's experience since the twin financial and currency crises of 1997 reveals that net exports have responded positively to the massive real depreciation. The depreciation coupled with the financial crisis has been contraction ary in nature. The rise in net exports has been accomplished through import compression rather than expansion of exports. The increase in net exports has shifted the current account from deficit to surplus within a very short time period.
The pattern of imports indicates that priority has been given to imports of food for household consumption. Import compression has been widespread, but in the case of textiles and apparel, imports have been maintained at close to pre-crisis levels. This has helped to maintain textile and apparel exports. For many commodity exports, the decline in dollar value is caused by low international prices (in foreign currency) as the volume of exports has risen. Hence, recovery in exports is likely to be enhanced if prices begin to rise. Sectors that are fairly open and that have foreign ownership in the form of affiliates of multinationals such as electrical machinery may also be less affected by the crises.
Further studies of the impact of the twin crises on trade-related economic activity in the other economies most afflicted would help clarify some of the issues raised in the present study.
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