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Indonesia and Its Leading Trading Partner China

In: Business and Management

Submitted By 8man
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Task 2

Indonesia is a country that is known for its land mass and its natural resources. Indonesia is also the 4th most populated country in the world. Indonesia consists of a population of approximately a quarter billion people spread across 17500 islands. The Indonesian archipelago has been known to be somewhat a main trading hub ever since the 7th century. After gaining its independence post World War II, the country’s economy has suffered badly, especially during the Asian financial crisis of 97-98. Indonesia’s exports came up to about USD 187 billion in the year 2012. The major export commodities comprises of oil and gas, electrical appliances, plywood, rubber and textiles. The major exporting partners of Indonesia are China (14%), Japan (12%), United States (9.5%) and India (8%). Other minor exporting partners include Singapore, Malaysia and South Korea (Chamber International, ND).

Source: Bloomberg
As can be seen from the graph above, the Indonesian Rupiah (IDR) is depreciating gradually against the Chinese Yuan (CNY) for the past 3 years. If we were to take a look on a half yearly basis, in the first half of 2011, the IDR was appreciating against the CNY. This could be due to high foreign investments worth USD 20 billion coming in to the country. Moreover, exports from the previous year also contributed to this appreciation by reaching a high of USD 203.62 billion which surpassed the official target of USD 200 billion (Wibisono, 2012). High foreign investments and high exports lead to high demand of local currency of which in turn appreciates the IDR. However, the second half of 2011 suggests that policymakers globally were expecting a recession, which lead Bank Indonesia to react by reducing the interest rates in order to indirectly reduce exchange rates in hopes of stimulating exports, domestic consumption and capital investments. This is shown in…...

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