Revaluation of yuan receives mixed reactions

The Jakarta Post, Jakarta/Batam

China's decision to revalue the yuan and make it stronger against the U.S. dollar met with mixed reactions here, with experts split on how the move would effect the country's economy.

Some were upbeat about the move on Friday, saying it would give a definite advantage to Indonesia's economy in terms of trade competitiveness, while others doubted a higher yuan would have any significant positive impact on trade or believed it would disadvantage local exporters over the long term.

Vice President Jusuf Kalla was one of the biggest optimists, saying that a stronger yuan would help boost Indonesia's economic growth, as exports to China would increase because Indonesian products would be more competitive in terms of price.

"Our exports to China will increase while our imports from there will decline because their products will get more expensive, while the price of our products will remain low," he said on Friday.

Coordinating Minister for the Economy Aburizal Bakrie and Minister of Trade Mari E. Pangestu, however, failed to share Kalla's positive outlook, saying the revaluation's magnitude was too small to bring any significant competitive edge to Indonesian exports.

"A revaluation of only 2 percent will not make Chinese products more expensive (compared to ours)," Aburizal said.

China scrapped on Thursday its decade-long pegging of the yuan to the dollar in favor of a basket of other major currencies, revaluing the currency slightly upwards by 2 percent from 8.28 yuan to 8.11 yuan to a dollar.

A stronger yuan will make Chinese exports more expensive and its imports cheaper -- a move analysts say is a politically clever way to ease tensions with China's trade partners and competitors that claimed China had an unfair advantage from the yuan-dollar peg.

They said the move was also economically wise as it would reduce China's cost of maintaining foreign exchange reserves because of the peg, and slow down a possible overheating of China's economy by shifting exports into more consumption.

However, chairman of the Indonesian Exporters Association (GPEI), Toto Dirgantoro, said the trade advantage from the yuan revaluation could in the end be outweighed by Indonesia's import needs from China.

Toto said the impact of the yuan's revaluation had been overestimated as the currency's exchange rate contributed little to China's production costs.

"China still has its competitive edge of lower wages, cheaper electricity rates, and other government incentives," he said.

Many Indonesian exporters, meanwhile, still depended on their raw materials from China, Toto said.

"Many of our textile industries actually import their cotton raw material from China; the same goes for our steel industry," he said. "A stronger yuan could make these import and production costs higher."

Two-way trade between Indonesia and China stood at US$13 billion as of last year, with Indonesia having the advantage because of its oil and gas exports.

Minister of Finance Jusuf Anwar said the government would keep monitoring the impact of the yuan's revaluation over time, as the measure would theoretically affect Indonesia in many ways that might not be immediately visible.

"We should watch how the yuan revaluation will affect our major trading partners, the U.S. and Japan. Because what happens to them will then affect us," he said in Batam.

Asia -- Page 13