Consistency in Efforts to Protect Rupiah Essential

KOMPAS/RADITYA HELABUMI

Workers pack imported soybeans from America at a small factory for the production of tempeh in Semanan, Kalideres, West Jakarta, on Friday (7/9/2018). The weakening of the rupiah against the US dollar has had an impact on imported food commodities such as soybeans. Production efficiency is one solution to reduce the pressure of increased production costs.

JAKARTA, KOMPAS – Efforts to control imports must be carried out consistently. These programs, supported by an increase in investment and exports, are expected to be able to reduce the pressure on the rupiah.

These measures will be able to reduce the current account deficit to less than 3 percent of gross domestic product (GDP). In the second quarter, the current account deficit reached a total of US$8.02 billion or 3.04 percent of GDP.

On a quarterly basis, there has been a current account deficit since the fourth quarter, 2011, while on an annual basis, a current account deficit has occurred every year since 2012.

The government recently announced a new policy to control imports through the introduction of an additional import tax on 1,147 consumer goods. In addition, the government has also ordered an increase in the use of palm oil-based biofuel in regular diesel to 20 percent and to boost tourism in order to increase foreign exchange earnings.

"All the measures must be implemented so that the current account deficit will decline significantly, not only this year, but also next year," Bank Indonesia (BI) Governor Perry Warjiyo said in Jakarta on Friday.

Based on the Jakarta Interbank Spot Dollar Rate (JISDOR), the rupiah exchange rate, which dropped to a new record low at 14,927 per US dollar on Wednesday, gained ground in the last two days. The rupiah strengthened to Rp 14,891 on Thursday and Rp 14,884 on Friday.

BI continues to maintain the stability of the rupiah exchange rate through intervention in the foreign exchange market and the purchase of government debt papers (SBNs) in the secondary market.

The currency stabilization effort has partly caused a decline in foreign exchange reserves. The foreign exchange reserves fell by $400 million to $117.9 billion at the end of August from $118.3 billion at the end of July.

"The decline in foreign exchange reserves was caused by the government\'s foreign debt payments and the stabilization of the rupiah exchange rate amid the growing uncertainty in the global financial markets," said the executive director of the central bank’s communication department, Agusman.

Perry said that sales of foreign currencies in the market had begun to increase in the past two days.  Business people have begun selling their foreign currencies, leading to an increase in dollar supply and the strengthening of the rupiah.

However, Perry said, the rupiah had yet to reach its fundamental value. The opportunity for the rupiah to strengthen further against the US dollar is still wide open, given the low inflation and the increase in bank lending and the decline in the current account deficit. "Of course, the rupiah still has the chance to further strengthen," Perry said.

Separately, the Office of the Coordinating Economic Minister\'s deputy for macroeconomy and finance, Iskandar Simorangkir, said that the disbursement of subsidized loans for micro, small and medium scale companies (KURs) was expected to reach Rp 120 trillion. A part of the loans will be given to KURs involved in tourism activities in the 10 priority tourism destinations and 88 national strategic tourism areas. The distribution of the loans is expected to be able to encourage the development of tourism, thus increasing foreign exchange earnings.

Based on BI’s data, the tourism sector’s foreign exchange earnings increased from $12 billion in 2015 to $13 billion in 2016 and $14 billion in 2017.

An economist at PT Bank Permata, Josua Pardede, estimates that the current account deficit can be reduced by $3 billion this year. The estimate is based on the expected decline in diesel imports as a result of the mandatory use of 20 percent palm-based biodiesel (B20 policy) in regular diesel and the additional import tax on consumer goods. The measures should have a positive impact on the stability of the rupiah in the short-term.

Prime commodities

The strengthening the US dollar against the rupiah provides an opportunity to increase exports of main plantation commodities such as palm oil, cocoa and rubber.

The director general of plantations at the Agriculture Ministry, Bambang said the ministry had encouraged farmers to improve the quality of their plantation commodities. The raw commodities, for example, should be processed first before being exported to gain added value. He cited the export of fermented cocoa beans in Bali that gave additional income to farmers.

"Initially, farmers got a price of Rp 30,000 per kilogram. Because cocoa beans have been fermented and as a result of the strengthening of the US dollar, farmers can enjoy a price of up to Rp 60,000 per kg," said Bambang.

Meanwhile, the head of the West Java BI representative office in Bandung, Ismet Inono, encouraged people to vacation domestically. At the year end, many residents travelled abroad and spent their dollars overseas.

Tri Rismaharini, the mayor of Surabaya, said that around 90 percent of the industries in the city comprised micro, small and medium scale enterprises (MSMEs). As most of the raw materials they use come from within the country, the weakening of the rupiah had no significant impact on their business.

Regarding the weakening of the rupiah against the US dollar, the executive secretary of the Indonesian Labor Institute, Andy William Sinaga, hoped that the weakening of the rupiah would not cause labor problems in the country’s industrial sector such as layoffs.

The labor problems in the industrial sector such as the termination of employment, layoffs or cuts in overtime, must be avoided because they can cause new social and economic problems in society.

(KRN/HEN/JUD/CAS/CHE/SYA)