Weak Rupiah Boosts Exports? Economist: It's a Myth

Jakarta, CNBC Indonesia - In recent weeks, the narrative that a weaker rupiah is a hidden blessing for the domestic economy has resurfaced on social media.

Several financial influencers have been actively educating the public with the classic premise that rupiah depreciation makes Indonesian products cheaper in global markets, thereby boosting exports.

However, Bank Permata Chief Economist Josua Pardede has firmly clarified that this logic is flawed and could mislead businesses and the general public.

Theoretically, a currency depreciation does benefit raw commodity exporters, as US dollar-denominated export revenues convert to higher rupiah values. However, Josua cautioned that the domestic economic structure is not that simple, given the complex supply chains in Indonesia’s manufacturing sector.

“Commodity exporters do benefit directly, but we must also consider the other side: manufacturing industries that need to import raw materials before exporting finished goods are actually burdened by rupiah weakness,” Josua Pardede stated during a discussion with Bank Indonesia. This heavy reliance on imported raw materials is often overlooked by social media financial content creators.

Furthermore, most manufactured goods relying on imported materials are intended for domestic consumption. Rising production costs due to currency depreciation trigger imported inflation, potentially eroding household purchasing power. This could threaten the current national economic growth momentum of 5.61%.

Therefore, Josua emphasised that exchange rate stability is far more critical for businesses than chasing a specific exchange rate level. Businesses require currency movement certainty for short-to-medium-term planning, such as ordering raw materials three to six months ahead. Without stability, excessive rupiah volatility creates high market uncertainty.

“Bank Indonesia’s role is not to direct the rupiah to a specific level; it is to maintain stability. This is what businesses need most: certainty and stability for their planning,” Josua stressed. This caution is reflected in the high level of undisbursed loans in domestic banks, remaining above 20%.

Ultimately, maintaining rupiah stability does not mean sacrificing economic growth; it is a prerequisite for both foreign and domestic investment to continue. Honest education about the nation’s economic fundamentals is essential to prevent the public from falling for the myth that a weaker rupiah is an economic advantage.