Current rupiah level neutral for RI economy: Dorodjatun
Current rupiah level neutral for RI economy: Dorodjatun
James Simms, Dow Jones, Tokyo
The current level of the Indonesian rupiah is "neutral" for the economy, Coordinating Minister for the Economy Dorodjatun Kuntjoro-Jakti said, adding that the currency's stability had contributed to the drop in inflation and falls in interest rates.
The rupiah is trading at over a two-year high due to political stability, which has helped lure back some capital this year. The stock market is up about 20 percent this year, which has further bolstered the rupiah, as money flowed in looking for high returns.
While the central bank has voiced concern over the rupiah's strength, which it said could hurt exporters by making Indonesian products more expensive in dollar terms, Dorodjatun said the current level had both positive and negative effects.
Asked about the strength of the rupiah hurting companies, he said: "Those that are dependent on imports to meet production - I don't think so." The minister cited imported electronics components and leather as examples.
"But of course for many that have to export commodities, ...I hear complaints from them," he told Dow Jones Newswires in an interview. "It's neutral" on balance.
Indonesia competes directly with China in the export of textiles and other low-end manufactured goods. China's yuan has fallen sharply this year due to its peg to the U.S. dollar, hurting Indonesian-based exporters.
Those exporters say a dollar below Rp 8,000 would hurt their competitiveness. The dollar is currently changing hands at Rp 8,225.
Rather than just the trade impact of the rupiah, Dorodjatun said the overall impact on the economy was more important.
"Most important - everyone shouldn't neglect that the stability of the exchange rate has enabled a reduction of inflation rate pressures by approximately 1.5 to 2.0" percentage points, he said.
"With inflation slowing down, we have been able to see the reduction of interest rates," he said.
The central bank has cut rates aggressively this year as inflationary pressure eased. The benchmark one-month central bank rate broke below 10 percent last month - the lowest level since the 1997-98 Asian financial crisis.
Dorodjatun accompanied Indonesian President Megawati Soekarnoputri on an official four-day visit to Japan to drum up investment, trade and aid.
Japan, which is the largest provider of development aid to Indonesia, pledged more financial support. The two nations also agreed to set up a working group to study a bilateral free trade agreement and agreed to work together to curb rampant illegal logging in Indonesia.