BI refuses to weaken rupiah to boost exports

Leony Aurora, The Jakarta Post, Jakarta

Bank Indonesia (BI) has refused to intervene in the foreign exchange market and weigh in on the rupiah performance against the U.S. dollar to boost exports in spite of calls from local business players.

Speaking at an Indonesian Chamber of Commerce and Industry (Kadin) business forum on Wednesday, BI governor Burhanuddin Abdullah said that exports should be increased through efficiency in the country's manufacturing sector.

"Let's postpone the idea of disturbing rupiah to boost exports," he said in the opening session of the second day of the two-day forum.

Indonesia is in desperate need for an increase in exports to accelerate its economic growth, particularly as investment has remained weak due to various uncertainties both at home and overseas. The economic growth has been mainly driven by domestic consumption.

Although last year's exports increased by 5.2 percent to US$61 billion from $57.2 billion in 2002, many experts believe that the figure could have gone higher had the rupiah not appreciated vis a vis the sliding greenback last year.

The local unit now stands at around Rp 8,400 per U.S. dollar, about 6 percent stronger than its rate a year ago at Rp 8,900 per U.S. dollar. It was one of the best performing currencies in the region last year. The strengthening in the rupiah has been a major factor behind the overall stability in several of the country's key macroeconomic indicators.

A sharp appreciation in the value of the rupiah can make Indonesian exports more expensive overseas, particularly compared to those coming from countries whose currencies are not appreciating as quickly as the rupiah.

Meanwhile, State Minister of State Enterprises Laksamana Sukardi said that to improve the competitiveness of Indonesia's business sector, the government would focus on four major areas.

"For business people, the most important is taxation," he said on Tuesday.

The government is discussing amendments of the current tax law, which is expected to bring lower tax rates and a simpler process.

The second priority was to improve labor productivity, while the third and the fourth were improvements of legal certainty and security, respectively, said Laksamana.

For the last several years, local industries have lost their edge in competing with foreign countries. China, for example, provides cheaper labor and other Asean countries impose lower tax rates than Indonesia.

In 2004, exports are expected to increase by 7 percent, thanks to the reviving global economy and an estimated jump in exports to China, which is now fourth for the top export destinations from Indonesia.