Tue, 07 Nov 2000

Euro has little impact on trade relations with RI

JAKARTA (JP): Since its launching in 1999, the European currency euro has had little impact on trade relations between Indonesia and the 11 European Union (EU) members adopting the currency, analysts said on Monday.

Economist Sri Mulyani Indrawati said that considering Europe's significant role as Indonesia's trade partner, the impact of the euro currency remained small thus far.

Indonesia's exports to Europe accounted for 90 percent of its total exports. Indonesia also imported 60 percent of its raw materials from the region.

"But the use of the euro currency for trading with Indonesia is only one percent," Sri told reporters following a seminar on the euro that was organized by the delegation of the European Commission to Indonesia.

Data from Bank Indonesia showed that 93 percent of the country's export and imports transactions were made in US dollar, with only one percent made in the euro currency.

The usage of euro is restricted to only banking transactions until the year 2002.

She said if Indonesian firms wanted to adopt the euro as a trading and investment instrument, they should feel "comfortable" with the currency first.

"The euro should therefore show the market that it has the stability and the prospects of being a reliable currency," she added.

Bart Heenk, treasurer and financial markets head of Citigroup Indonesia said in the two years since its launching, the euro declined by 30 percent against the U.S. dollar.

Within members of the European Union, negative sentiments from England, Denmark and Sweden further hurt the euro, he said.

These countries thus far continue to use their national currencies.

Heenk said the gap between the gross domestic product (GDP) growth of Europe and the U.S. was another barrier to euro.

"GDP growth in the EU continues to lag behind the U.S," Heenk said during the seminar.

But he estimated that by middle of next year the gap would close, thus making the euro more attractive to Indonesian firms.

ABN AMRO Bank director of treasury, Clemente Escano also attributed the lack of interest in the euro to the currency's sluggish performance.

"In the future there will be more use of the euro, but not now," he said.

Escano said the euro and the Japanese yen were alternative currencies for companies wanting to diversify their dollar- dominated assets.

Yet at present, he said, the usage of US dollar reached dis- proportional levels.

According to him, the U.S. represents 70 percent to 80 percent of Indonesia's total trade value, yet 93 percent of transactions are made in US dollar.

He added that the U.S dollar would remain as the most actively used currency in the world for a long time.

Singapore-based Deutsche Bank currency strategist Peter M. Redward said thus far the euro and the rupiah had little influence over each other.

"There seems to be little relationship between the two (rupiah and the euro) and the primary reason is that the rupiah tends to do its own thing based on the whims within Indonesia," Redward said.

The rupiah's movements, he said, were largely affected by US dollar-dominated debt payments and the country's political tensions.

However, as trade relations between Indonesia and Europe were regaining their precrisis level, a wider use of the euro was foreseeable, he said.

"What we're likely to see in the near term, over the next 12 to 18 months, particularly if the political situation stabilizes, is an increase of interest in Indonesia as a trade destination," Redward said.

In the year 2002, the euro will effectively become the single currency for its 11 adopting countries. By then members will withdraw their national currencies from the market and replace them with euro coins and banknotes.

The 11 countries are Germany, France, Spain, Ireland, Italy, the Netherlands, Finland, Luxembourg, Belgium, Austria and Portugal. Greece is expected to join next year. (bkm)