Fri, 09 Apr 2010

From: The Jakarta Post

By Mustaqim Adamrah, The Jakarta Post, Jakarta
While the fast appreciation of rupiah against the US dollar will make imported products cheaper, analysts have warned that “too strong” rupiah would hurt Indonesia’s exports.

The appreciation of the rupiah against the greenback may lead to danger signals for Indonesia’s exports if it stays stronger than Rp 9,000 to the dollar, analysts say.

“A too strong rupiah will eventually undermine exports because our exports will be less competitive,” state lender Bank Negara Indonesia chief economist Tony Prasetiantono told The Jakarta Post on Thursday.

He said the rupiah should be ideally maintained at about Rp 9,000 to the dollar because if it strengthens further, that is below Rp 9,000 to the dollar, it could result in negative impacts on Indonesia’s exports.

The currency traded at Rp 9,053 per dollar on Thursday after reaching a 30-month-high at Rp 9,038 a day earlier, Bloomberg reported.

Tony said if the rupiah further appreciated, for example, to Rp 8,900 a dollar, exports could consequently decrease by 5 percent. “At the same time, imports could increase by 5 percent, which might cause a problem in the country’s balance of payment,” he added

He said the government should closely monitor the situation because the country’s trade surplus had begun to decline due to the increase in imports. According to him, the monthly surplus in January and February was only US$1.5 billion, lower than the monthly average surplus of about $2 billion.

He said Bank Indonesia, the central bank, which always intervened when the rupiah was too weak, should do the same thing to make sure the rupiah was not too strong. Besides maintaining the rupiah at a reasonable level, the central bank should keep a close eye on the inflow of foreign funds, especially possibly hot money invested in government bonds and stocks.

Meanwhile, Standard Chartered Bank senior economist Fauzi Ichsan said he admitted there might be some negative impact from a stronger rupiah against exports, but that such an impact would be “small”.

“Exports indeed will be more expensive on a stronger rupiah. But import costs will decline accordingly,” he told the Post. He also said the trade surplus was forecast to decline from $44.7 billion in 2009 to $21.5 billion this year partly due to the stronger rupiah.
“But [the good news is] we still have a surplus in our current account, which means our foreign reserves automatically continues to rise,” he said.

Meanwhile, Deputy Trade Minister Mahendra Siregar earlier said non-oil exports were estimated to have reached $27.35 billion in the first quarter of this year, the highest level for the first quarter since 2008. Non-oil exports already reached $9.25 billion in January and $9.1 billion in February.