Drastic rupiah change, its benefits and risks<\/p>\n
The rupiah's sharp appreciation against the U.S. dollar in the
\nlast few weeks will influence the Indonesian economy positively
\nif it is followed by stability, says Pande Raja Silalahi, a
\nsenior economic researcher at the Center for Strategic and
\nInternational Studies (CSIS).<\/p>\n
Question: What is the most convenient level for the rupiah
\nunder Indonesia's current economic condition?<\/p>\n
Answer: The rupiah's most convenient level for the time being
\nis about Rp 9,000 to Rp 9,500 against the dollar. That level is
\nalso convenient for the government's 2001 state budget, which is
\ncalculated on an estimated average dollar value of Rp 9,600.<\/p>\n
The rupiah has appreciated to about Rp 8,600 per dollar merely
\non (positive) sentiments in the society.<\/p>\n
Q: Have you considered the purchasing power parity in estimating
\nthe most convenient level for the rupiah's value?<\/p>\n
A: If we consider the existing data on purchasing power parity,
\nthe equilibrium level for the rupiah's value might be less than
\nRp 9,000 per dollar. But the problem is we cannot rely on those
\ndata.<\/p>\n
Q: Do you see problems with the current appreciation of the
\nrupiah?<\/p>\n
A: The problem is that the appreciation is too drastic. A too
\ndrastic appreciation of the rupiah may cause difficulties to
\nexporters and domestic producers and, as a result, it may affect
\nthe economy. It will not matter if the rupiah appreciates to less
\nthan Rp 9,000 per dollar if the appreciation is gradual, giving
\nadequate time for business people to make necessary adjustments.<\/p>\n
Q: How far does the drastic appreciation affect exports?<\/p>\n
A: Exporters usually have to provide three-month iron stocks of
\nimported raw\/basic materials. That means they by now have
\nimported materials bought with dollars worth more than Rp 11,000
\neach, while the dollars that they will receive from exports will
\nbe worth less than Rp 9,000 each. They will face difficulties
\nbecause the rupiah has appreciated by about 30 percent, while
\ntheir profit margin is less than 30 percent.<\/p>\n
Q: But some exports, such as those of agro-based products, are
\nnot dependent on imports. Does the drastic appreciation of the
\nrupiah, all in all, do more harm or good to our exports?<\/p>\n
A: It does more harm than good, at least, for the time being.
\nThat is why we hear loud complaints from business people,
\nincluding those producing raw materials in various regions.<\/p>\n
Q: What about the impact of the rupiah's appreciation on
\nIndonesia's imports?<\/p>\n
A: Because Indonesia's economy is about 70 percent dependent on
\nimports, the rupiah's appreciation will significantly reduce the
\ncountry's rupiah spending for imports.<\/p>\n
Q: Does it also mean that the rupiah's appreciation will drive
\nconsumer prices lower?<\/p>\n
A: Even though importers have procured their goods with expensive
\ndollars, consumer prices will decline soon -- perhaps within one
\nand a half to two months -- because competition in the domestic
\nmarket is very tight.<\/p>\n
Q: So the inflation rate will decline in the coming months?<\/p>\n
A: It is true that import pressures on inflation will decrease in
\nline with the rupiah's appreciation. But because importers will
\nneed some time to adjust their sales prices, the positive impact
\non inflation will be effective in, say, November. But by that
\nmonth, demands for goods will increase due to the Idul Fitri
\nMuslim holiday and Christmas celebrations the following month.
\nThe inflation rate will thus remain high in the coming months. A
\ncumulative inflation rate of about 10 percent to 12 percent is
\npossible for the whole year, as compared to the previous estimate
\nof between 12 percent and 13 percent.<\/p>\n
(The inflation rate reached 2.12 percent in July, bringing the
\ncumulative inflation rate to 7.7 percent during the first seven
\nmonths of the year.)<\/p>\n
Q: And what about the appreciation's impact on agricultural
\nactivities?<\/p>\n
A: It does more good than harm to our agricultural activities
\nbecause most of our agricultural products are for domestic
\nconsumption.<\/p>\n
Q: Will the rupiah's appreciation help encourage investors to
\nstart new businesses?<\/p>\n
A: Investors, in starting new businesses, will seriously take
\nstability into consideration as it is factor they can use to
\ncalculate profitability. Indonesia used to be a profitable place
\nfor investment before the economic crisis. If the economic
\nconditions are stable, investing in Indonesia will again be
\nprofitable.<\/p>\n
It is true that the situation in Indonesia is now stable and
\npredictable and the country, therefore, should now be attractive
\nfor new investments. But there will always be a time lag for
\ninvestors to come into Indonesia.<\/p>\n
Q: How far will the rupiah's appreciation influence the economic
\ngrowth?<\/p>\n
A: The appreciation, together with some other factors, will
\nlikely influence the economic growth positively, so the country's
\ngross domestic product (GDP) is likely to grow by 3.5 percent
\nthis year.<\/p>\n
(According to the Central Bureau of Statistics, the GDP grew
\nby 3.37 percent during the first semester of this year.)<\/p>\n
Q: Do you think the rupiah's value will continue to increase or
\ndecrease in the coming months?<\/p>\n
A: It depends on future developments. If the government (under an
\nagreement with creditors), for example, can delay the repayments
\nof some debt, the rupiah's value may remain at its current level.
\nOn the contrary, a slowdown in export growth can affect the
\nrupiah's value. (Rikza Abdullah)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/drastic-rupiah-change-its-benefits-and-risks-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}