The weakening rupiah, now significantly deviating from the 2024 state budget assumption, poses risks to Indonesias trade performance. Bank Indonesia (BI) needs to intervene across short, medium, and long-term strategies.

According to Bloomberg, the rupiah closed at Rp 16,412 per dollar on Tuesday, far exceeding the state budgets assumption of Rp 15,000 per dollar.

Permata Bank Chief Economist Josua Pardede highlighted the need for the central bank to continue foreign exchange market interventions as a short-term solution to the rupiahs depreciation. In the medium term, BI should enhance policies on export proceeds and deepen Indonesias financial markets. Long-term efforts should focus on diversifying exports to reduce reliance on volatile commodity prices.

Export diversification should reduce dependence on a few countries, while import diversification should lower the need for imported inputs. Additionally, the tourism industry should be boosted as a source of foreign exchange, Josua told Investor Daily.

Josua anticipates the rupiah will remain between Rp 15,900 and 16,200 per dollar until the end of 2024, considering temporary sentiment factors and potential US Federal Reserve rate cuts.

Based on data from the Central Statistics Agency (BPS), Indonesias trade balance has been in surplus for four consecutive years, with a cumulative value of $157.21 billion. Indonesias trade surplus in April 2024 was $3.56 billion, down by $1.02 billion monthly.

Meanwhile, Said Abdullah, Chairman of the House of Representatives (DPR) Budget Committee, emphasized the need for national unity to address the weakening of the rupiah. He pointed out that the US Federal Reserves high interest rates would continue to exert pressure on the currency. Abdullah recommended various measures for fiscal and monetary policymakers:

He suggested optimizing foreign exchange management, especially in handling export proceeds from natural resources, with appropriate incentives and sanctions. He also called for reforms in the financial sector to attract foreign capital and ensure positive portfolio investment inflows. Additionally, he proposed tightening import policies to safeguard foreign exchange reserves and protect domestic industries.

Abdullah emphasized the importance of keeping government securities (SBN) attractive to foreign investors by maintaining moderate yields and securing standby buyers. He also advocated for expanding creative financing solutions involving large liquidity organizations and business associations.

Furthermore, he highlighted the necessity of increasing the use of local currency swaps to reduce dependency on the US dollar. Lastly, Abdullah urged the implementation of effective hedging policies to manage foreign exchange liquidity for government, state-owned enterprises (SOEs), and private sector debt payments.

These measures are crucial to stabilize the rupiah and support the national economic structure amidst tightening global liquidity, Said concluded.

Last week, BI Governor Perry Warjiyo defended the central banks strategies in response to the weakening rupiah, highlighting that despite recent fluctuations, the currencys performance remains relatively robust compared to other regional counterparts.

Governor Perry said that Indonesias depreciation rate is significantly lower than that of countries like Korea, the Philippines, Thailand, and Japan. He reassured stakeholders in Jakarta that despite global economic volatility, the rupiah has demonstrated stability, supported by BIs proactive triple intervention strategy involving the Domestic Non-Delivery Forward (DNDF) market, the spot market, and government bonds (SBN).

Weve implemented comprehensive measures, including interventions and initiatives to attract foreign portfolio investment, all of which have contributed to maintaining stability and have received positive feedback from the president, Perry affirmed.

Source :jakartaglobal.id

Jun 29, 2024