Further Steps to Protect Rupiah

KOMPAS/AGUS SUSANTO

A glass ball magnifies the illustration of Benjamin Franklin on a US$100 bank note on Tuesday (4/9/2018) in Jakarta. Despite hovering at around Rp 14,800 per US dollar, the rupiah strengthened slightly to Rp 14,891 per US dollar on Thursday (6/9/2018), a 36-point (0.24 percent) increase from Rp 14,927 per US dollar the previous day.

JAKARTA, KOMPAS – The government is preparing additional measures to reduce the current account deficit. After announcing an additional import tax on 1,147 imported consumer goods, the government is discussing a number of national strategic projects that can be delayed.

By reducing the current account deficit, it is expected that the pressure on the rupiah will also ease. Indonesia has run a current account deficit since the fourth quarter of 2014. In the second quarter of 2018, the current account deficit reached US$8.02 billion, or 3.04 percent of gross domestic product (GDP). A current account deficit occurs when a country earns less US dollars than it needs.

According to the Jakarta Interbank Spot Dollar Rate (JISDOR), the rupiah exchange rate rose slightly to Rp 14,891 per US dollar on Thursday (6/9/2018), from Rp 14,927 per US dollar on Wednesday.

Bank Indonesia monetary management head Nanang Hendarsah told Kompas that BI was being consistent in doing its best to protect the rupiah from rapid and steep depreciation. The central bank was also ensuring that the movement of liquidity and efficiency in the foreign exchange market and government debt papers (SBN) were being maintained.

Between Aug. 8 and Sept. 4, the central bank bought Rp 11.9 trillion worth of SBNs that foreign investors were selling on the secondary market. "BI supports the government\'s steps in controlling the current account deficit," said Nanang.

Fithra Faisal Hastiadi, a lecturer at the University of Indonesia’s Economics and Business School, projected that pressure on the rupiah from the financial crises in Argentina and Turkey would begin to diminish in the next two months. The pressure due to the US Federal Reserve’s planned interest rate hike would also subside around the same time.

"The pressure from the current transaction deficit will bring an even longer impact, especially when global financial markets are in turmoil. The government has tried to fix it. Restoring it must be sustainable," she said.

Coordinating Economic Minister Darmin Nasution did not provide the total value of the national strategic projects to be postponed on Thursday, when he spoke to reporters after a coordination meeting on the postponement.

He said the selection of the national strategic projects followed two criteria: that the project was still in the preparatory stages and that it was not urgent. One of the projects to be postponed was the construction of a power plant in Java. The project was not urgent, because almost all regions had been electrified, and the project was still in its preparatory stages.

The government will not simply postpone the projects, and will also schedule any delays. Thus, businessmen will find no difficulty in ensuring certainty for the investors and other parties involved in the projects.

The Committee for Accelerated Delivery of Priority Infrastructure’s (KPPIP) data in June shows that of 223 national strategic projects, only two projects had been completed and 162 projects were under construction with a target to begin operation in 2018 or 2019. Six projects were finalizing funding and the remaining 53 projects were in their preparatory stages.

Yose Rizal Damuri, the economics head at the Centre for Strategic and International Studies (CSIS), said the delays in developing infrastructure could trigger short-term and long-term effects on economic growth. For this reason, the project delays must be set out clearly and in detail.

Meanwhile, the Financial Services Authority (OJK) is also preparing an intervention measure to restore stability in the capital market if the Jakarta Composite Index (JCI) continues to fall. Approaching investors is one way to mitigate market panic. On Thursday, the JCI rose 1.62 percent to close at 5,776.09.

"Intervention will be implemented if the capital market turmoil worsens and the price index falls more than 5 percent. We view the present turmoil as still normal. Volatility is caused by market dynamics," said OJK capital market supervisory head Hoesen.

Encourage exports

The Central Java provincial administration is encouraging local industries to export their products. "Textile producers have a chance to increase their exports. Some of the raw materials for the textile industry is imported, but exports of textile products such as apparel must be increased. Export activities should be encouraged further," said Central Java Governor Ganjar Pranowo.

PT Dan Liris president director Michelle Tjokrosaputro said that the weakening rupiah had opened opportunities to increase local exports among businesses in Solo, Central Java. Around 40 percent of Dan Liris\'s textile products were exported to Asia, the United States, Europe and Australia. The company was now eyeing the Chinese and Indian markets, which have large populations and a growing middle class.

Separately, Trade Minister Enggartiasto Lukita said the ministry would closely monitor foreign exchange earnings from exports. It would also require exporters of natural resource products to use a Letter of Credit (L/C) so their export earnings could be monitored easily.

(HEN/KRN/DIM/WHO/RWN/RAM)