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Newsletter | Indonesia wants to “balance” cross-border trade. Really?

Updated: Apr 25, 2022

Dear Readers,

At CIPS, we dissect and analyze public policies. One that attracted our attention recently is the government’s plan to update its approach to cross-border trade and quota permits for the importation of global commodity supplies; called the Neraca Komoditas (NK), or loosely translated to Commodity Balance.

In April last year, the government presented NK to determine how it sets quotas for import and exports. It would be an integrated national database system to track supply and demand in commodities for industries and consumers.

It identifies shortages or excesses in domestic production of target commodities to base quota setting in the issuing of import and export permits. In short policymakers will use it to determine how much they will ‘open the tap’ for domestic producers to access the raw and semi-processed materials they need.

The NK will first apply to five food commodities -- rice, meat, sugar, salt and fishery products—but the government plans to encompass more commodities next year.

We explored the complex implications of this in a lively discussion, here.

As you know, CIPS has always been a strong proponent of more open trade policies and the removal of bureaucratic hurdles. We advocate for the removal of non-tariff barriers, the elimination of import and export quota systems, and the need for policies to facilitate open market access for Indonesian businesses of all sizes.

NK offers some advantages. It could mean a shorter permit processing and an improved transparency that allows for less corruption opportunities.

However, it still relies on ineffective quota-based trade policy approaches and a flawed data gathering method to determine trade policies.

I also must stress attention to the fact that data collected in the NK are past data. It will be difficult, maybe even impossible, to use this to predict future needs. The NK also limits itself to data on simplified production and consumption volumes.

Prices and their movement, key indicators of the state of market supply and demand, is overlooked.

The five commodities in the first roll out of the scheme are relatively simple to manage. However, the planned future expansion will cover other commodities of a more complex manufacturing nature, such as steel, and this will open a new can of worms.

Not to mention NK only caters to the needs of large-scale companies. What about the smaller and medium businesses that also stand to gain from a wider access to global supply of materials?

Our recently published analysis shows that this Neraca Komoditas is not the right approach to ensure stable and affordable food prices, but these are early days and we will be keeping a close eye on it.

Lastly, I am really pleased that CIPS Associate Researcher, Krisna Gupta, has a new paper on the heterogeneous impact of tariffs and NTMs on the productivity of Indonesian firms. It is published in the prestigious Bulletin of Indonesian Economic Studies. You can read his paper here and here!

Salam hangat,

Rainer Heufers

Executive Director

Center for Indonesian Policy Studies


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