Barter: is it a Great Strategy for Trade?
There have been several precedents of Indonesia bartering goods with other nations in the past.
by: Felix Utama Kosasih
published: August 22, 2017
Jakarta, GIVnews.com – Early in August, the month of independence for Indonesia, excitement rose over the news that the country has concluded a deal to barter coffee, crude palm oil, rubber, and tea with 11 Sukhoi Su-35 fighter jets from Russia. This deal, valued at approximately USD 600 million, was aimed to replace the aging fleet of F-5 fighter jets that the Indonesian Air Force currently operates.
In a visit by Trade Minister Enggartiasto Lukita to Russia earlier this month, an MoU was signed by Russian aircraft manufacturer Rostec and Indonesian commodity exporter PT. Perusahaan Perdagangan Indonesia.
According to Minister Lukita, this latest agreement highlights the strategic importance of Russia as Indonesia’s largest trading partner in Central and Eastern Europe.
As Russia is currently being hit by trade embargoes and other financial sanctions by America and the European Union, it is forced to look to other nations to fulfil its needs. This situation creates an opportunity that Indonesia must not miss. In 2016, the volume of Indonesia-Russia trade reached USD 2.11 billion, with a surplus of USD 411 million for Indonesia. This figure was a rise from the previous year’s total, which was USD 1.9 billion.
The barter powers
Turns out this is not the first time Indonesia has decided to barter its goods with other nations, and it’s likely that this will not be the last one either. Although barter is not widely recognised as an outdated trading system, replaced by the rise of universally recognised money and currencies centuries ago, it does still have a few unique advantages. The most important one is for parties of the barter to get exactly what they want without the hassle of doing another money-facilitated purchase.
Moreover, the transaction can happen without any customs or excise fees which may have been charged had the purchase occurred through money instead of barter. Through barter, customs and excise fees cannot be levied as the amount of exchanged goods has already been clearly spelled out in the barter agreement. Finally, barter can be a way to widen trade channels to countries which are traditionally not usual trade partners.
“According to a study conducted by University of Indonesia’s Faculty of Economics and Business, Russia and several other ex-Soviet Union countries are potential trade partners in terms of per capita income, purchasing power, and economic growth. This barter is a way for us to gain entry into their market.” said Universitas Indonesia researcher Fithra Faisal Hastiadi
“I believe this is a good strategy. Our difficulty with entering European markets is related to the world governance index. Meanwhile, Russia, whose governance is no better than ours, do not enforce very tight rules,” he continued.
There have been several precedents of Indonesia bartering goods with other nations in the past. In June 2013, Indonesia and China started a negotiation process to produce a Mutual Recognition Agreement (MRA), which will cover trade of Indonesian bird’s nest with Chinese garlic among others.
A month later, the government made plans with Thailand to barter Indonesian fish with Thai rice. A more recent example is a potential trade of Indonesian-made bullet-proof vest with Venezuelan oil, which was explored by Indonesian Ambassador to Venezuela H.E. Moch. Luthfie Witto’eng in early 2016. Moreover, during Megawati Soekarnoputri’s tenure as president, she also authorised a barter of Indonesian commodities with 2 Sukhoi Su-27 SK and 2 Sukhoi Su-30 MK from Russia.