Rupiah Falls 303 Points, Impact on Industrial Competitiveness is a Concern

The depreciation of the rupiah exchange rate increases the production costs of imported raw and auxiliary materials.

KOMPAS/P RADITYA MAHENDRA YASA

The production activities of modern kitchen equipment at Nayati Factory in Terboyo, Semarang City, Central Java, on Thursday (17/9/2020). The weakening of the rupiah will put pressure on the manufacturing industry.

JAKARTA, KOMPAS — The weakening of the rupiah exchange rate will put pressure on costs for manufacturing industry players. This is because the majority of raw materials and auxiliary materials used by domestic manufacturing industries have to be imported. Depreciation of the rupiah exchange rate will increase the production costs of imported raw and auxiliary materials.

The rupiah exchange rate against the US dollar according to the Jakarta Interbank Spot Dollar Rate (JISDOR) as of April 16 2024 reached IDR 16,176 per US dollar. This figure dropped sharply to 303 points compared to the last Jisdor figure issued before the Eid holiday on April 5 2024, namely IDR 15,873 per US dollar.

Minister of Industry Agus Gumiwang Kartasasmita said that the weakening of the rupiah exchange rate would put pressure on the country's manufacturing industry. This is because the production costs of manufacturing industries that use imported raw and auxiliary materials will increase due to the weakening of the rupiah exchange rate.

"If the rupiah weakens, of course it will increase production costs," said Agus in his office, Jakarta, Tuesday (16/4/2024).

BENEDIKTUS KRISNA YOGATAMA

Minister of Industry Agus Gumiwang Kartasasmita was met by journalists during the Eid al-Fitr halalbihalal at the Ministry of Industry Office, Jakarta, Tuesday (16/4/2024).

In addition to the increase in direct import costs of raw materials and auxiliaries, there is also the potential for an increase in production costs arising from other cost increases, such as electricity costs.

In the next round, Agus continued, the increase in costs will also lead to an increase in the selling price of products. "If the rupiah weakens, we can see that prices will definitely be much higher, which will affect the competitiveness of our products. That is what the government is concerned about," said Agus.

The majority of domestic manufacturing industries are still heavily dependent on imported raw materials and auxiliaries. This is reflected in the latest data from the Central Statistics Agency (BPS), which shows that in January-February 2024, the total import of raw materials or auxiliaries reached 72.47 percent of the total imports, amounting to 36.93 billion US dollars.

If the rupiah weakens, we can see that prices will certainly be much more expensive, which will affect the competitiveness of our products. That is the concern of the government.

Raw materials and auxiliary materials are imported and then processed or produced into finished products in the domestic manufacturing industry. The high level of raw material imports by the manufacturing industry is due to the weakness of the upstream and intermediate industries in the country. Additionally, there are still many types of raw materials that cannot be produced domestically.

KOMPAS/PRIYOMBODO (PRI)

The queue of people who want to make transactions at PT Valuta Artha Mas in Jakarta on Tuesday (16/4/2024). Officials acknowledge that the number of people selling their US dollars has increased due to the strengthening exchange rate against the rupiah.

Not only is there potential for an increase in the prices of domestically manufactured goods, but also for imported goods. With the same price, importers have to dig deeper into their pockets because the value of the rupiah is weaker, resulting in more expensive goods.

Quoting data from BPS, in January-February 2024 the total import of consumer goods reached 3.63 billion US dollars or 9.84 percent of the total imports.

Also read: Rupiah Exchange Rate Weakens, Prices of Goods May Increase

Price increase

Met separately on Tuesday, the Chairman of the All-Indonesia Food and Beverage Entrepreneur Association (Gapmmi), Adhi S Lukman, said that the weakening of the rupiah exchange rate could have an impact on the increase in food product prices. This is because there are several types of food products whose raw materials still need to be imported.

He hopes that the government and Bank Indonesia (BI) can sit down together to take steps to stabilize the rupiah exchange rate. "Please ensure that there is no reverse capital outflow (capital outflow)which could lead to a weakening of the rupiah exchange rate," said Adhi.

Secretary General of the Indonesian Motorcycle Industry Association (AISI) Hari Budiarto stated that the weakening of the rupiah exchange rate does not necessarily increase the selling price of motorcycles. This is because currently, imported motorcycle raw materials components generally only account for about 10 percent of total production needs. Components that still need to be imported include semiconductors and steel frames.

Meanwhile, the level of domestic content (TKDN) for motorbike products is generally up to 90 percent.

"Most of the motorbike components are produced domestically. "Only a few raw material components are imported," said Hari.

According to him, the decision to increase the selling price needs to be evaluated and calculated carefully. Therefore, the depreciation of the rupiah will not necessarily immediately raise the selling price of motorcycles.

Also read: Weakening Rupiah Potentially Triggers Price Surge, Entrepreneurs Hope for Intervention