INTERNATIONAL TRADE AND

INDONESIAS BALANCE OF
PAYMENTS
 Group Member

Group 5
Hasanah Vidya Putri 1506305133
Ida Ayu Artha Widya Sari 1506305143
 Foreign Trade and Welfare

International free trade is often said to be a growth engine (engine of growth) that has
been able to build the economy and provide prosperity to the now developed countries
like western europe (Germany, Dutch, French, Spain, Italia, Portugal) England , And
America. For example, most of western european countries are competing to find new
areas or colonies to get the basics the factory needs. Negro slaves were brought to the
United States which resulted in slave trade and resulted in cheap agricultural labor
wages and had brought economic progress in the United States. In addition to
international free trade contribute to the availability of cheap raw materials and cheap
labor for industrial development, international free trade has also resulted in
widespread export markets for today's developed countries.
 Free trade contain advantages

1. Free trade increases competition, improves the allocation of all resources and creates
economies of scale
2. Free trade creates pressure that leads to efficient improvement, improvement of
product quality, and improvement of production technology quality.
3. Free trade spurs economic growth, raises the value of profits and promotes increased
savings and investments that further spur further growth in the future
4. Free trade will be attractive, all of which are the much-needed resources for economic
development.
.
5. Free trade brings in foreign exchange which can then be used for import
purposes, such as the import of machinery and raw materials for the benefit of
economic development, or even for the import of food if one day the country is
experiencing periods of famine due to prolonged dry season or The occurrence
of natural disasters
6. Free trade tends to eliminate any price-high distortions caused by misguided
government investments in both export and foreign exchange markets and
refine market allocations that would erode corrupt practices and rampant
nonproductive hunting that often arise As a result of overactive government
intervention.
7. Free trade enhances equity to gain access to any scarce resources, as well as
improve the quality of overall resource allocations.
Note: besides those
who support free
trade, there are also
some experts who
oppose / denounce
free trade.
 Foreign Trade Policy and Problems
Talks about the foreign trade policy and problems facing Indonesia in
general can be distinguished into outward-oriented policies and
inward-oriented policies. Obviously is as follows:
1. Outward-oriented policies for primary goods (encouraging exports
or agricultural products and raw materials in general). This was
done during the Dutch colonial era and independence during the
New Order.
2. Outward-oriented policy for secondary goods (increasing exports of
manufactured products).
3. Inward-oriented policies for secondary goods (ie, prioritizing self-
sufficiency in the fulfillment of the need for industrial goods,
Barriers to Foreign Trade of
Indonesia
Barriers to export promotion of agricultural
products. There are at least five factors that
hamper the pace of agricultural product
development in Indonesia for export to the
European market (the main market of
Indonesian plantation products).
 Five factors that hamper the pace of
agricultural product
The first is the demand The second causative factor The third factor is

elasticity of the income is the low even near zero that the demand
level (the impact of population growth rate in elasticity of most
changes in income on developed countries so that primary commodities
demand) for relatively on price changes is
a slight increase in the
low foodstuffs on also relatively low.
demand for agricultural
agricultural produce
materials that the
andThe fourth and
raw materials. fifth factor causing inhibition of the
developing
increase in export earnings countries commodities
of primary can is
the rapid increase ofexpect
discovery andfactor.
from this development of
synthetic substitution items and the increasingly
protective wall for the importation of agricultural
commodities in developed countries.
Indonesia's Foreign Trade
Performance

In the Dutch colonial period and the government of

the old order of export of Indonesia in the form of
agricultural products, especially the plantation of a
private plantation company owned by the Dutch
which later nationalized at the end of the old order,
and the livestock products of cattle and pigs.
Imports at that time were mainly rice, production
facilities for Dutch private plantations, durable
consumption such as cars, and capital materials for
economic development.
Foreign Trade Trends
(Globalization?)

In advance has presented the virtues of

world free trade, that he is raising the
efficiency of the business, will increase
the scale of business, spur economic
growth, attract the entry of capital and
energy experts from developed
countries, bring in foreign exchange,
eliminate price dostrosi, and improve
the equity and welfare of society world.
The view of the superiority of world free
After the foreign investment law (UUPMA) in 1967 and the domestic
investment law (UUPMDN) in 1968 was enacted, there was a huge flow of
foreign capital into Indonesia, especially in the oil and other extractive
sectors. Banking credit is growing so rapidly that it can support the
private sector to bounce back. Pertamina started its massive program
with the source of the cost of oil revenues and from large amounts of
foreign loans. Since then, the rise in the price of oil in the international
market has caused Indonesia's exports of petroleum to dominate the total
exports. Indonesia is a member of OPEC.
Progress of domestic industry is indicated by the amount of imports for
industrial raw materials and capital needs. Included in raw materials are
food and beverage (for industry), food and beverages (semi-finished
industries), spare parts and equipment of capital goods. While the capital
The import value of raw materials and capital materials for 2002-2007
was mainly imported from America, Europe and Asia, especially ASEAN
and Australia. With import values dominated by materials and tools for
industrial development, the manufacturing industry has shown significant
progress.
FOREIGN DEBT
 DEBT CRISIS 1980s

Before 1970s, the amount of debt from developing

countries relatively small, in general the debt came
from foreign countries or international fund
organization like IMF, world bank and another
regional bank. Most of loans have small interest rate
and deliberately made to prop-up the
implementation of every construction project not
only have benefit in economic sector but also in
social factor , and also to import capital stuffs.
 DEBT CRISIS 1980s

Before 1970s, the amount of debt from developing

countries relatively small, in general the debt came from
foreign countries or international fund organization like
IMF, world bank and another regional bank. Most of loans
have small interest rate and deliberately made to prop-up
the implementation of every construction project not only
have benefit in economic sector but also in social factor ,
and also to import capital stuffs.
But in the end of1970s- 1980s,
international commercial bank distribute
useful loans for developing countries to
help solving deficit problem and to
increasing the amount of export.
Although the loans have many benefit
but it also has expense
In 2000s, for developing countries the amount of
expenses were excess the amount of benefit and profit.
The biggest expense form loans aboard are increasing
debt installment expense, consist of amortization and
interest payment that will be increasing by the time, that
wil be paid form revenue and real savings.

If the amount of debt increasing or the amount of interest rate increasing,

so the installment will increase too. The debt installment should be paid
from foreign exchange. Installment should be paid from export revenue. If
the amount of export decreasing, developing countries will be in trouble to
pay their installment. This is the bad experience that already happen
almost in every developing countries for example argentine , brazil.
 Indonesias Foreign debt

Indonesia's economic growth on average per year since the end of 1970 has
always been positive and income per capita levels have increased steadily, but
the amount of Indonesia's foreign debt has also been growing steadily every
year. Many other developing countries, which also experienced high economic
growth during the 1970s to 1980s also showed the same phenomenon. The
position of Indonesia's foreign debt and several Asian countries for 1980 and
1998 is shown in Table 11.8
In table 11.8 it can be seen that Indonesia is one of
the big debtors in Asia same along with China and
South Korea, Indonesia's foreign debt consists of
long-term government debt and private long-term
debt secured or not guaranteed by the government,
short-term debt and credit from the IMF. The
proportion of IMF loans in Indonesia's total foreign
debt has increased considerably since the economic
crisis hit in Indonesia. The end of 1998 loan
Indonesia from the world financial agency reached 9
billion US dollars.
For the years 2005 to December
2007, Indonesia's foreign debt
position is presented in Table
11.9. From the table it turns out
that Indonesia's foreign debt
remained in the range of 150
billion dollars in 1999, and it
only fell marginally to the
position of 136 billion US
dollars.
BALANCE OF
PAYMENTS
Components of the balance of
payments

Balances Of Walking Transactions

Capital Account

Cash Balance
 It is a balance sheet that focuses on the transactions of
exports and imports (goods and services), income,
investments, repayments and principal of foreign debt,
as well as balances of mails and transfers of money from
and to foreign countries, both government and private
sector. Specifically this balance sheet showing the
difference between the value of imports and exports, it
Balance calls trade balance of goods, and add it to the balance of
s Of investment income from abroad, the difference between
Walking interest and dividends received (in the form of stocks,
Transac bonds, and time deposits in banks ) Abroad, less the
tions amount of interest and dividends received by other
citizens of the country based on the investment that
they do in that country, and the difference between the
earnings of domestic firms holding overseas business
units and the profits or income of foreign-owned
enterprises in The country.
 Write and classify the value of investment
from foreign direct investment, especially by
multinational corporations, foreign loans
provided by private international banks, and
loans and grants from other governments (in
the form of external guidance Country), and
come from multilateral donor organizational
Capital
Account
such as the IMF and the World Bank. The
inflows of the country's foreign funds are
subtracted by one type of transaction called
"capital outflow of the population" or also
known as capital flight.
 Basically, the balance sheet is only
a balancing transaction (as well as
transaction M, is a transaction that
records errors and deletions to
combine statistical differences, the
difference of L transactions involves
Cash a change of wealth, while M
Balance transactions simply change the
numbers on paper) whose numbers
become Smaller or lowered
(indicating the net outflow of
international spaces of the country
concerned) if the total expenditure
on the current account balance and
The purpose of the
balance of payments
 LIQUIDITY

The Indonesian government's short-term liquidity shows

a high sensitivity to an indicator of its international
balance of payments balance position, namely the rate
of change in foreign exchange reserves. One of the
reasons for this sensitivity is the opinion that the
confidence of the Indonesian population as well as
foreigners towards the prevailing foreign exchange rate,
and possibly also on the economic policy of the
government in general, strongly influenced by the
development of foreign exchange reserves. According to
foreign exchange reserves are considered a sign of
failure in the policy, so it will frighten cause capital
might flight abroad.
solvability

Solvency, in the long run, the policy makers must

consider the problems that may arise in the
balance of payments as an effort to increase
income and the expansion of productive
employment opportunities. Export revenue is a
limitation on importing capability, although this is
not absolute because it still depends on how far
the government allows (or seeks) foreign capital.
 Indonesias Balance of Payment

Data on Indonesia's balance of payments for the years

2002-2007 can be seen in table 11.12 on the trade
balance in the table we find that for six years (2002-
2007) Indonesia's exports are always greater than the
amount of imports. This means Indonesia's balance
sheet is always positive. The export value of
Indonesian goods moved from about 60 billion US
dollars in 2002, always rising to about 120 billion US
dollars in 2007. These exports are mostly non-oil and
gas exports, agricultural products only 5 percent of
total exports and oil and gas exports account for about
10 percent.
DISCUSSION SESSION