The Sparkle of Palm Oil Product’s Exchange During The Covid Pandemic and Economic Recession
In July 2020, the palm oil industry again added US dollar for Indonesia from export foreign exchange of USD 1.8 billion. Accumulatively, 7 months of the Covid 19 pandemic period on January-July 2020, the palm oil industry has booked foreign exchange of USD 11.9 billion.
The palm oil industry seems to have super high immunity in the global market. Even though many countries have locked down due to the Covid-19 pandemic, the international palm oil trade continues. As a result of this pandemic, many countries experienced recession or negative growth in the second quarter, however, palm oil importing countries from Indonesia continued to grow positively in the aggregate compared to last year.
India, which in the second quarter (Q2/2020) had a negative growth of 23.9 percent, but imports of palm oil from Indonesia still increased, from USD 438 million to USD 772.3 million or grew by 76 percent. The same thing also happened to the United States, where the GDP growth rate in Q2/2020 experienced a growth of minus 32.9 percent, but imports of palm oil from Indonesia still increased from USD 218 million to USD 277 million or grew by 27 percent.
There are also two export destination countries for Indonesian palm oil that experienced a decline in import value in Q2/2020 compared to last year, but the trend is still showing an increase where the percentage is close to even surpassing last year.
This is different from the countries in the European Union which also experienced negative GDP growth of -11.9 percent and the import value of palm oil from Indonesia also decreased by around 9 percent compared to last year. Although the import value has decreased, the accumulative value of imports of palm oil from Indonesia in three European Union countries, namely Germany, Netherlands and Spain, still reached USD 549 million in Q2/2020.
If other countries have not recovered their economies due to Covid-19, it is different from China which has enjoyed positive GDP growth in Q2/2020. Although the accumulative value of palm oil imports from Indonesia has decreased compared to last year, from USD 1076 million to USD 675 million, but Indonesian palm oil imported by China still shows an increasing trend of 37 percent.
For the Indonesian economy, palm oil foreign exchange of USD 11.9 billion can add ”fresh blood” to the economy amid the Covid-19 pandemic and economic recession. This foreign exchange can also make Indonesia healthy and even create a trade balance surplus.
Based on data from the Central Bureau of Statistics, the accumulated trade balance for the January-July 2020 period recorded a surplus of USD 12.5 billion for the non-oil and gas trade balance, while the oil and gas trade balance was deficit of USD 3.8 billion, so that the aggregate total trade balance was a surplus of USD 8.7 billion. Of the non-oil and gas surplus, around USD 11.9 billion or 95 percent came from palm oil product’s foreign exchange. This means that the non-oil and gas surplus is contributed by palm oil foreign exchange. If there was no foreign exchange for palm oil, Indonesia would experience a trade balance deficit.
Palm oil product’s foreign exchange of USD 11.9 billion, which is equivalent to IDR 170 trillion, is more than double the funds for handling the COVID-19 pandemic from the State Budget which is only IDR 75 trillion. In terms of aggregate demand, the injection of “fresh blood” from oil palm foreign exchange in the economy will increase aggregate demand, thereby increasing consumption and investment leverage.
From the aggregate supply side, this foreign exchange is generated from oil palm plantations in 225 districts involving millions of MSMEs and corporations throughout Indonesia. The still large demand for palm oil from importing countries has pushed up the price of FFB at the plantation level. This makes the “economic machines” of oil palm plantations spin faster. The rotation of the oil palm economy engine can also infect the food economy engine in rural areas so that it can rotate faster. The engine rotation of the rural economy has prevented villages from experiencing food shortages, and there have been no layoffs during the pandemic. On the contrary, the rural economy remains vibrant and does not know recession like the urban economy.
We hope that the rotation of the “economic machines” in the oil palm plantation centers will accelerate and infect the urban “economic machines” which are experiencing a rotating slowdown due to the pandemic. The sparkle of palm oil foreign exchange generated in palm oil center districts, which is the “new fresh blood”, will be an important force to prevent and pull the economy out of economic recession.
Dr. Tungkot Sipayung,
Economist and Executive Director of PASPI
* This article has also been published at: http://globalplanet.news/berita/28436/kilauan-devisa-sawit-masa-pandemi-covid-19-dan-resesi but has experienced a little discussion of writing
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