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Russian-Ukrainian War Impact on Indonesia

wheat Ukraine
Russian-Ukrainian War Impact on Indonesia

Russia’s attack on Ukraine has shaken the world economy, undeniably affecting Indonesia as well, mainly related to the supply of wheat. 

Although not a staple food, the consumption of wheat in the country is high. Wheat is used as the main ingredient for making instant noodles, bread, fried foods, and various snacks that use wheat flour.

Ukraine also has close trade relations with Indonesia, even though the country is a non-traditional trading partner. Indonesia is one of the main importers of wheat in the world. Its position even surpasses Turkey and Egypt, two countries that do have wheat as a staple food.

Quoted from data released by the Central Statistics Agency (BPS), Ukraine ranks first in the origin of wheat imported by Indonesia. The volume has also increased from year to year.

For example, during 2020 alone, Indonesia’s wheat imports from Ukraine reached 2.96 million tons. Imports of wheat from Ukraine far exceed the overall imports of Indonesian soybeans from various countries including primarily the US.

As a comparison, in 2020, the other largest imports of wheat came from Argentina at 2.63 million tons and Canada at 2.33 million tons. While overall in 2020, Indonesia’s total wheat imports were 10.299 million tons. Ukraine contributed more than 20 percent of the stock of wheat in the country.

The large import of wheat makes Indonesia routinely record a trade deficit with Kiev. Indonesian foreign exchange siphoned off to pay for imported wheat from Ukraine reached US$707.568 million or equivalent to Rp10.16 trillion – following the exchange rate of Rp14,360.

Reporting from Kontan, apart from wheat, Indonesia is also very dependent on several commodities from the former Soviet state. Another fairly large imported product from Ukraine is steel.

It is feared that this will affect the stock of wheat and food producers in the country,” said Centre of Economic and Law Studies Director (Celios) Bhima Yudhistira.

Furthermore, the impact of the war will also increase inflation and logistics costs which will be much more expensive. Basic needs will also increase and people’s purchasing power will be lower.

Yudhistira said the steps needed to be taken by the government were to anticipate changes by adding additional National Economic Recovery (PEN) funds, part of which should be allocated for food price stability and energy price stability. The Indonesian Chamber of Commerce and Industry highlighted the impact of the Russia-Ukraine geopolitical conflict on business continuity and the Indonesian economy.

Deputy Chairperson of the Indonesian Chamber of Commerce for International Relations Shinta Kamdani said that both Russia and Ukraine could be called non-traditional trading and investment partners for Indonesian businesses. In recent years, Indonesia has tried to conclude a number of trade agreements with Russia as part of market diversification, although these efforts have not yet been completed.

Although not detailed, Kamdani said, export-import and investment activities involving Russia and Ukraine with Indonesia are still relatively small, even lagging far behind Indonesia’s trade with neighbouring countries in Southeast Asia.

So the direct impact of this conflict on trade and investment relations in Indonesia is not significant,” added Kamdani.

On the trade side, Indonesia has the potential to experience supply disruptions, especially for oil and gas, due to the global embargo on Russia which could affect the stability of supply and global oil prices. Apart from that, Kamdani assessed that there were no significant changes because the Russian-Ukrainian contribution to the national economy was very small.

For example, Indonesia’s trade with Russia is dominated by oil and gas products, iron or steel, and defense equipment which can actually be substituted by other countries because the trade volume is not dominant as the import share value is only around 1 percent. Meanwhile, in terms of exports to Russia and Ukraine, Indonesia’s dominant product is crude palm oil (CPO).

Even so, the amount of CPO exported to Russia and Ukraine is also relatively small when compared to CPO exports to other countries. As a result, it is easy for Indonesia to diversify or divert CPO exports to other countries so that its export performance is not disrupted by the conflict in Eastern Europe.

“It’s just that this conflict will disrupt Indonesia’s plans to carry out further economic cooperation with Russia and Ukraine because the conflict conditions are not conducive,” expressed Kamdani.

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