Indef provides mitigation recommendations for industry amidst rupiah weakening
The Institute for Development of Economics and Finance (Indef) has provided several risk mitigation recommendations for industries facing the impact of the weakening or depreciation of the rupiah against the US dollar. On Monday morning (18/6), the rupiah exchange rate weakened by 33 points or 0.19 per cent to Rp17,630 per US dollar, compared to the previous close of Rp17,597 per US dollar.
Speaking in Jakarta on Monday, Indef Executive Director Esther Sri Astuti stated that the first recommendation for industries to mitigate this risk is for companies to strengthen the use of hedging instruments to protect cash flows from foreign exchange fluctuations. Esther noted that the depreciation of the rupiah against the US dollar can significantly pressure the manufacturing sector, particularly industries that remain heavily dependent on imported raw materials.
“This condition has a direct impact on the labour market through swelling production costs, rising imported inflation, the threat of layoffs, and a decline in labour absorption due to hindered business expansion,” she said.
Furthermore, she recommended that companies and industries begin seeking and partnering with local suppliers as an alternative to imported raw materials, although she acknowledged that this effort presents its own set of challenges.
“The next recommendation is efficiency and the control of operational costs. Businesses should implement cost-cutting measures, such as rationalising capital expenditure (capex) and optimising working capital without sacrificing quality,” Esther added.
Additionally, she suggested that the industrial and business sectors attempt to conduct transactions using Local Currency Settlement (LCS) for international trade payments. “The more companies attempt to conduct international trade payments through the Local Currency Settlement or LCS mechanism, the more we can reduce the dominance and dependency on the US dollar,” Esther concluded.