The rupiah has strengthened in value after it dropped to Rp 14,205 to the US dollar. Nevertheless, fluctuations may still occur. Currency exchange rates are one way to measure a country’s economic condition.
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ANTARA FOTO/SIGID KURNIAWAN
A money changer counts US dollars at an outlet in Jakarta on Thursday (24/5/2018). The rupiah, which had decreased in value to Rp 14,200 per US dollar, strengthened on Thursday (24/5/2018) by 0.53 percent or 76 basis points to Rp 14,133 per US dollar.
The rupiah has strengthened in value after it dropped to Rp 14,205 to the US dollar. Nevertheless, fluctuations may still occur.
Currency exchange rates are one way to measure a country’s economic condition. Exchange rates are strongly influenced by global economic conditions, such as through state financing’s dependency on foreign funds. A nation\'s economy is more prone to fluctuations if the need for funding exceeds revenues.
This is what happens in Indonesia, as was revealed in a panel discussion on the economy held by Kompas daily on Wednesday (6/6/2018). Since 2012, Indonesia has experienced a current account deficit. This was a result of having debts in financial markets and around 40 percent of state bonds being owned by foreign entities.
Bank Indonesia January data reveal that government, central bank and private sector debt reached US$357.5 billion and had a 10.3 percent annual growth.
When conditions abroad are more profitable, foreign investors will move their funds away from Indonesia. This was what happened in early to mid-May, triggered by the rise in US government bond yields.
The rupiah dropped in value to Rp 14,205 per US dollar on May 24, the lowest it has been since 2016, before rebounding. On Thursday, the rupiah’s exchange rate on the Jakarta Interbank Spot Dollar Rate (Jisdor) was Rp 13,868 per US dollar. The rupiah also fluctuated in 2015, when it was valued at Rp 12,500 per US dollar in January and Rp 14,728 on Sept. 29, 2015.
Payment of government, state-owned enterprises and private sector loan principals and interest through purchasing US dollar domestically also reduces the amount of US dollar in circulation. Foreign direct investment in domestic markets also takes up foreign exchange as raw materials are imported and the profits are sent to the parent companies abroad.
Exchange rate stability is necessary in arranging state budget and corporate finances. It affects imported staple food prices and inflation. The Indonesian economy took a severe hit due to a sharply declining rupiah in 1998.
In order to prevent such volatility, there is no other way than to reduce US dollar spending by reducing imports and foreign loans. Another way is to improve US dollar revenue through the exportation of goods and services. The Kompas panel discussion recommended a change to the economic growth model as Indonesia can no longer afford to rely on foreign funding.
Tourism can be a mainstay in bringing in foreign exchange relatively quickly and with the lowest investment. Remittances from our migrant workers help build the economies of villages, but their quality and protection must be improved. Nevertheless, these two sectors will not be adequate to boost growth higher than 5 percent.
What we must do is jumpstart the real sector and penetrate the global supply chain to release ourselves from the middle income trap. This needs a national economy strategy and industrialization policy that is consistent in the long run, as well as leadership and political support from all stakeholders.
