Efforts to Convert Export Earnings into Rupiah
The rupiah has plunged even deeper. In addition to negative sentiment from external factors as the main cause behind the fall, domestic factors also play a part in the sharp depreciation of the Indonesian currency.
JAKARTA, KOMPAS — The rupiah has plunged even deeper. In addition to negative sentiment from external factors as the main cause behind the fall, domestic factors also play a part in the sharp depreciation of the Indonesian currency.
Currently, there are many business players who are still reluctant to convert their US dollars into rupiah. Many businesspeople also seek to use US dollars to pay for their imports.
The government needs to continue to persuade business players to keep their foreign exchange earnings in the country over the long term or convert them into rupiah.
According to the Jakarta Interbank Spot Dollar Rate (Jisdor), on Tuesday (4/9/2018), the rupiah was at Rp 14,840 per US dollar. Based on data on Bloomberg\'s website on Tuesday night, the rupiah was traded in the range between Rp 14,780 and Rp 14,938 per US dollar on the spot market.
Local banks have also increased the exchange rate of the rupiah to US dollar to a range of Rp 14,930 to Rp 15,200 per US dollar. In fact, the interbank price has reached below Rp 14,900 per US dollar.
"This has caused exporters to delay the conversion of US dollars to rupiah. The supply of US dollars has declined. On the other hand, the need for the US dollar has also increased to finance imports and to stabilize the rupiah exchange rate," said Bhima Yudhistira Adhinegara, an economist at the Institute for Development of Economics and Finance (Indef).
Indonesia, said Bhima, currently needs more foreign exchange reserves. If the problem is related to the small amount of the export earnings, which could be converted to rupiah, the easiest way to resolve it is to issue a regulation.
The President can issue government regulations in lieu of the law (Perppu) to revise Law No. 24/1999 on foreign exchange traffic. With the revision, the law can oblige exporters to deposit their foreign exchange earnings in domestic banks such as for six, nine or 12 months.
"As of June 2018, foreign exchange earnings from exports reached as total of US$69.88 billion. Of the total amount, about $64.74 billion or 92.6 percent was transferred to domestic banks. However, the dollars only stayed for a short period of time. The amount, which was converted to the rupiah, only reached $8.62 billion or 13.3 percent," he said.
The head of the Center for Economic Studies and Public Policy at Gadjah Mada University, Yogyakarta, A. Tony Prasetiantono, said local business players were too worried. The financial crisis in Venezuela, Turkey and Argentina scared the local businesspeople a lot, even though the situation there is different from that of Indonesia during the Asian financial crisis in 1998.
At present, the rupiah has dropped from Rp 13,700 per US dollar in 2017 to Rp 14,800 per US dollar at present. During the 1998 crisis, the rupiah plunged from Rp 2,300 (October 1997) to Rp 15,000 (January 1998). In 1998, Indonesia’s foreign exchange reserves totaled only $23 billion, while as of July 2018 the amount reached $118 billion.
"They are traumatized by the 1998 crisis, comparing the sharp fluctuation of the current exchange rate to that in 1998. In fact, the fundamental condition is different. The country’s current economic fundament is stronger than it used to be. This is the task of the finance minister and the President – to convince business players," he said.
Tony said that the President and the finance minister could invite entrepreneurs to have a heart-to-heart talk and show Indonesia\'s latest economic data. However, at the same time, the President should also be able to convince the market that the government will immediately step on the brake pedal (halt economic growth) in order to save foreign exchanges and reduce the current account deficit to below 3 percent of the gross domestic product (GDP).
According to the balance of payment data issued by Bank Indonesia, the current account deficit amounted to $8 billion in the second quarter of 2018 or 3 percent of the GDP. A quarterly current account deficit has been recorded since the fourth quarter of 2011, while on an annual basis, it has been recorded since 2012.
Indonesia\'s trade deficit reached a total of $3.09 billion from January to July 2018. From January to July 2017, there was a trade surplus of $7.38 billion.
Saving in Indonesia
Early Tuesday morning, President Joko “Jokowi” Widodo held a closed-door meeting with a number of ministers and heads of government institutions. The meeting discussed, among other things, the exchange rate of the rupiah, which has sharply declined against the US dollar.
"In essence, we have to reduce the trade deficit by increasing exports and reducing unnecessary imports. The details will be discussed with the finance minister, the BI governor and the trade minister," Vice President Jusuf Kalla said at his office.
The Vice President said the imports of luxury goods should be reduced first. Although the value in the trade balance was not so large, people needed to be encouraged to save their money, he added.
The awareness of businesspeople on the need to defend their country was also touched on during the meeting. Exporters were asked to save their money in Indonesia, not in Singapore, Hong Kong or other countries. "The money should be taken into the country, so that it will not strengthen Singapore, Hong Kong, while weakening Indonesia," Kalla said.
On a separate occasion, Finance Minister Sri Mulyani Indrawati said the government would immediately issue a finance minister regulation on imports of consumer goods. "We will continue to maintain the supply of raw materials and capital goods for the business sector," Sri Mulyani said in Jakarta on Tuesday.
Sri Mulyani said she, together with trade minister and industry minister, had chosen 900 commodities to be regulated with the new import policy. These commodities had so far been imported but they did not give much added value to the Indonesian economy, she said. These commodities are classified as tertiary consumer goods.
Meanwhile, Coordinating Economic Minister Darmin Nasution is still assessing types of commodities with exports that could be increased.
(HEN/INA/DIM/LAS)