Every time Indonesia’s Central Statistics Agency (BPS) releases monthly trade balance data, public discourse in Indonesia tends to revolve around a single question: surplus or deficit? It is as if that number becomes the sole benchmark of the nation’s economic health. In reality, within the framework of healthy and sustainable economic development, a trade balance surplus or deficit is just one of many parameters that must be assessed proportionally and contextually, because the reality is far more complex.

Indonesia has indeed recorded trade surpluses in recent years. In 2022, the trade surplus reached its highest level at USD 54.46 billion. In 2023, the surplus fell by USD 18.04 billion to USD 36.42 billion before dropping again in 2024 to USD 31.33 billion. The decline in 2023 and 2024 was partly due to weak prices of Indonesia’s main export commodities, namely coal and CPO. However, exports of HS 85 (electrical machinery and equipment), HS 72 (iron and steel), and HS 87 (vehicles other than trains or trams) during the same period showed a strengthening trend compared to 2019-2021. The upward momentum in these product groups, under HS codes 85, 72, and 87, needs to be analyzed to identify the driving factors, so that the government and business sector can better focus on developing relevant policies. In essence, the trade balance does not automatically reflect the strength or weakness of the national economy. At the very least, it is not that simple

A large trade surplus can be a reflection of weak domestic consumption or investment. If domestic demand is sluggish, imports will fall, and this can create a surplus that signals stagnation in the domestic economy. Countries like Japan often experience trade deficits due to high imports of capital goods and technology, which support their long-term productivity. Conversely, a trade deficit can indicate a growing economy. When Indonesia imports more capital goods such as machinery, electronic equipment, or raw materials for the manufacturing industry, the resulting deficit may reflect ongoing industrialization and modernization. Countries like India or Vietnam have also experienced periods of deficit while building their industrial foundations.

Therefore, it is more important to pay attention to the quality of exports and imports, not just their size. Are we exporting high-value-added goods, such as electric vehicles, complex manufactured products, or digital services? Or are we still exporting raw materials whose value is easily eroded by the market? Or are we importing large amounts of capital goods to support the expansion of domestic industry and FDI, resulting in a deficit? Instead of asking every month whether Indonesia is experiencing a trade surplus or deficit, it would be more beneficial to examine the general state of Indonesia’s economy today and to approach the surplus-deficit debate more neutrally.

As discussed in previous writings, Indonesia’s economic transformation toward becoming a modern industrial nation still faces numerous challenges. The manufacturing sector, which should be the backbone of the economy, is stagnating. In the 2000s, manufacturing’s contribution to GDP once reached 28% but has now leveled off at around 18%. The contribution of manufacturing to non-oil and gas exports has also declined compared to the previous decade. Indonesia must dare to push for sustainable, export-oriented industrialization, not stopping at just primary processing. True industrialization occurs when we can produce competitive finished goods for both local and global markets while also creating jobs. Major opportunities to be seized lie in the green economy sector, digital technology, and new supply chains formed due to global de-risking trends.

However, to face increasingly fierce—even brutal—global competition, Indonesia needs to strengthen its logistics infrastructure, improve labor productivity, and ensure trade regulations that foster efficiency and openness. Infrastructure still requires attention, but with a clearer focus, careful planning, and measurable long-term functionality targets --not just monumental projects whose economic value never materializes or even ends up abandoned. This includes accelerating the integration of major ports (international hub ports, international ports, and national ports) and feeder ports at regional and local levels, as well as optimizing existing airports to strengthen economic connectivity between regions.

Good infrastructure will also support product and export market diversification by further processing primary commodities into finished products. This can be achieved by providing incentives to export-oriented industries that create value-added products, while ensuring the availability of raw materials domestically and the readiness of infrastructure to transport raw materials to manufacturing centers.

Equally important --and something we are not yet accustomed to-- is regularly reviewing various trade policies without waiting for problems to arise. Tariff, non-tariff, and trade facilitation policies must create a conducive business climate. Therefore, the process of reviewing trade policies with business actors needs to be conducted regularly to identify regulations that are no longer necessary, those that need improvement, and those that the government must formulate. This step is taken to maintain and create a business climate that is adaptive to global dynamics.

The key to all of the above, to make Indonesia a strong industrial and trading nation, is the development of human resources and mastery of technology. Major investments in research, vocational education, and digital transformation will increase Indonesia’s competitiveness in the long term. This requires a shift in our approach to education --from merely producing as many graduates as possible from fields with limited job prospects or those increasingly being replaced by artificial intelligence (AI) to disciplines needed by today’s and tomorrow’s industries, which will increasingly rely on technological and AI mastery as the main competitive factors.

The trade balance is an important indicator, but not an absolute one. Indonesia cannot build its future economy by merely chasing a surplus. While the trade balance should be monitored, it cannot be the sole indicator of economic health. What is far more important is the direction of Indonesia’s economic development: are we moving toward a high value-added, innovation-based economy that can balance domestic and global markets, or are we merely standing still relative to other emerging economies? Focusing on the quality of trade—not merely the surplus or deficit figures—is the key to healthy and sustainable growth.

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Iman Pambagyo is the Trade Ministry’s Director General of International Trade Negotiations (2012-2014, 2016-2020) and Indonesia’s Ambassador to the WTO (2014-2015).

The views expressed in this article are those of the author.