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Indonesia not to let rupiah fall to help export
Tuesday, 24 March 2009
Indonesia is unlikely to follow the path taken by regional peers to
allow the local currency to fall against the dollar to make exports more
competitive amid slumping global demand: BI official says.
Bank Indonesia (BI) deputy governor Hartadi A. Sarwono said last Friday
that such a move, usually evident when a central bank stops defending
its currency against depreciation, carries risks as well.
“It (not intervening in support of the currency to cheapen exports)
should be done carefully. There is no standard,” Hartadi said.
“With a (currency) depreciation, yes exports will be cheaper. But the
exposure of companies to overseas debts will also be bigger. These need
to be considered.”
Bloomberg reported policy makers from India, Malaysia, the Philippines,
Taiwan and South Korea have let their currencies fall, reversing course
on currency policy to reduce the costs of plunging exports.
Philippines’ central bank deputy governor Diwa Guinigundo said March 4
the country would not intervene to shore up the peso, while South
Korea’s Finance Minister Yoon Jeung-hyun said Feb. 25 that currency
depreciation might be an “engine for export growth”.
Korea’s won and Indonesia’s rupiah have been the two worst performers in
Asia against the US greenback this year. The rupiah, which has weakened
7.3 percent this year, was traded at 11,760 per dollar at 4:54 p.m.
Friday in Jakarta.
The World Bank has said world trade is expected to fall at the fastest
rate in 80 years. BI said Indonesia’s exports might contract by between
25 percent and 28 percent this year.
In 2008, Indonesia’s exports rose almost 20 percent, to hit US$136.76
billion, according to the Central Statistics Agency (BPS). But in
January, exports plunged by 36 percent from a year earlier.
Analysts Mirza Adityaswara and Helmi Arman agreed with Hartadi that a
rupiah depreciation would not significantly bolster export performance,
as the current export slide simply reflects lack of demand.
Mirza, the chief economist at Bank Mandiri, Indonesia’s largest bank by
assets, said a rupiah depreciation would not instantly boost exports.
“Demand has dropped drastically. A weakening rupiah can’t boost demand.”
He added that it might in fact undermine the country’s overall economy
as most debts, including government ones, were in dollars.
Not to mention that a cheaper rupiah means imported goods will be more
expensive, undermining the benign trend in the inflation rate in the
past few months and reducing leeway for the central bank to keep
lowering its interest rates – a key to driving economic growth.
Helmi, Bank Danamon economist, agreed, saying that export
competitiveness would not be significantly affected by a rupiah
depreciation. “It may even be contra-productive, considering overseas
debts and (derivative) incidents in banks lately.”
“What’s important now is (the) stability (of rupiah). It should be in
line with other currencies; the rupiah can’t strengthen or weaken
alone,” he said.
Exports accounted for about 20 percent of Indonesia’s economy last year,
according to the Central Statistics Agency (BPS).
The economy expanded 6.1 percent last year, with the 2009 state budget
based on the revised assumption that this year’s growth would slow to
4.5 percent, but BI recently estimated
that economic growth could fall as low as 4 percent, as the full
negative impact of the global crisis has not peaked yet.
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