Villages, the Dollar, and the Rationalisation of Downstreaming
This article is a column; all content and opinions are the personal views of the author and do not reflect the editorial stance.
President Prabowo’s statement that rural people do not shop using dollars highlights a major irony in Indonesia’s economy. On the face of it, the sentence is true. In the nagari market, at fertiliser kiosks, at small shops, people pay in rupiah. No farmer buys rice with dollars. No vegetable trader calculates their capital using the Bloomberg rate. But the economy does not stop at the point of sale. Prices that appear local are often shaped by global costs.
At this point, downstreaming needs to be read more rationally. Downstreaming is important, even strategic, but it should not be treated as a mantra that automatically cures all economic vulnerabilities.
Villages do not use dollars as a means of payment. Yet as long as the national production structure remains indebted to the dollar, rural markets will continue to bear its tremors.
The biggest mistake in reading exchange rates is to assume the dollar only affects those who transact directly in foreign currency. In truth, the dollar operates invisibly. It enters through the prices of fuels (BBM), LPG, fertilisers, pesticides, livestock feed, agricultural machinery, vehicle spare parts, industrial inputs, food imports, and even distribution costs.
Rural people do not buy dollars, but buy goods whose production costs are linked to the dollar.
When the rupiah weakens, importers face higher costs. Producers using imported raw materials bear the pressure. Distributors recalibrate logistics costs. The government bears heavier energy subsidies.
Some of the pressure may not immediately appear in inflation because subsidies are kept, prices are controlled, stock is maintained, or purchasing power is weak. But the pressure does not disappear. It simply shifts: from consumers to the APBN, from producers to profit margins, or from today’s market to future prices.
Therefore, saying that rural people do not spend with dollars is true literally, but not economically sufficient.