The fast appreciation of the rupiah against the US greenback has sparked concern among exporters that this may cause Indonesian goods to become more expensive and undermine exports.
But the government is playing down this concern.
Finance Minister Sri Mulyani Indrawati said last week that the current level of the rupiah valued against foreign currencies, especially the US dollar, remains within safe limits for the country’s exports.
She said that the rupiah appreciation would not really hurt the competitiveness of the country’s products overseas as large parts of Indonesia’s non oil and gas exports still use imported raw materials The increase in the production costs of certain product components (in dollar terms) as the result of the appreciation of the rupiah could still be compensated for by the decline in import costs as a result of the fall in the value of the US dollar, she said.
The rupiah reached a 19-month high last week as investors looked to Asia to place their money. It was traded at Rp 9,095 per dollar on March 17, the strongest level since August 2008, Bloomberg reported.
Some exporters have expressed concern that the appreciation of the rupiah, especially against the US dollar, would make their products less competitive in international markets.
However, Standard Chartered economist Eric A. Sugandi said exports would likely remain safe if the rupiah stayed within the range between Rp 9,000 and Rp 9,500 per dollar. “It doesn’t harm exports as long as it stays between Rp 9,000 and Rp 9,500. It’s still supportive, although too fast an acceleration could be dangerous,” he said.
“The rupiah is not yet overvalued,” he added.
Citi analyst Manish Bhai said with the current exchange rate level, exports were still manageable. He estimated the rupiah would be traded at a range between Rp 9,200 and Rp 9,300 per dollar on average throughout the rest of this year.
In the proposed 2010 state budget revision the government revised the average rupiah exchange rate to the US dollar for the year to an average Rp 9,500 up from initial an Rp 10,000.
In the budget revision the government expects exports to rise 13.2 percent this year due to higher global demand and improved commodity prices.
Last year exports suffered a 9.7 percent contraction, according to the Central Statistics Agency (BPS). The government estimates that imports will rise 16.4 percent this year, up from a 15 percent contraction booked in 2009.
Eric said the competitiveness of the country’s exports was largely determined by such factors as high costs resulting from production inefficiencies and distribution bottlenecks rather than being undermined by a rising rupiah.
The under-development of infrastructure has become one of Indonesia’s main economic problems. The government has said it will prioritize infrastructure development in the 2009-2014 period in order to help achieve the 7 percent GDP growth target by 2014.
Last year the economy grew by 4.5 percent, according to the BPS.
The government expects the economy to expand 5.5 percent this year on the back of stronger investment and exports. In the government’s work plan, the economy is expected to accelerate to 6.3 percent in 2011.
Strong economic fundamentals have made the central bank upgrade its economic forecast for 2010 to between 5.5 percent and 6 percent, and between 6 percent and 6.5 percent for 2011.
While the rupiah was at a 19-month high last week, South Korea’s won and the Malaysian ringgit fell on concern that Greece might not secure financial support from the EU, cooling demand for emerging-markets assets.
Thailand’s baht advanced as overseas investors pumped more funds into the nation’s shares. The won fell 0.3 percent from the end of last week to 1,131.20 per dollar in Seoul, Friday, according to data compiled by Bloomberg.
The ringgit slid 0.3 percent to 3.3030 from March 12, when it reached 3.2910, its strongest level since August 2008.
The Singapore dollar was 0.1 percent lower at S$1.3952.
The Asia Dollar Index, which tracks the region’s 10 most- used currencies excluding the yen, reached 112.07 on March 17, its highest close since August 2008
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