US Dollar Strengthens, A Number of Business Sectors Take Profits

The export-oriented natural commodities sector has the potential to make big profits from the strengthening of the US dollar.

KOMPAS/TOTOK WIJAYANTO

Loading and unloading activities of containers from and into cargo ships at New Priok Container Terminal 1 in North Jakarta, on Friday (23/2/2024). The Central Statistics Agency recorded Indonesia's exports in January 2024 amounted to 20.53 billion US dollars, or a decrease of 8.34 percent compared to the previous month. Meanwhile, the value of imports in January 2024 was 18.51 billion US dollars, a decrease of 3.13 percent compared to December 2023.

JAKARTA, KOMPAS — There are at least six business sectors that have the potential to benefit from the strengthening of the US dollar against the rupiah. They are a sector that uses domestic raw materials and its sales are export-oriented. Thus, the profits obtained will be greater due to the strengthening value of the US US dollar exchange rate.

Vice President for Industry and Regional Research of PT Bank Mandiri (Persero) Tbk, Dendi Ramdani, stated that there are several business sectors that can benefit from the strengthening of the US dollar exchange rate. These sectors are those that use local raw material supplies but sell their products using the US dollar currency.

"The production can be more efficient because the raw materials are sourced domestically. As for selling their products, they are export-oriented, so they can make a bigger profit due to the strengthening of the US dollar," said Dendi when contacted in Jakarta on Tuesday, April 23rd, 2024.

One of the sectors that benefits from depreciation of the rupiah is palm oil. Indonesian palm oil production comes from domestic plantations and is exported to many countries. When the US dollar strengthens, palm oil entrepreneurs also enjoy large profits.

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

Quoting data from the Central Bureau of Statistics (BPS), exports of animal/vegetable fats and oils products (with HS code 15) in the first quarter of 2024 reached 5.96 billion US dollars. This contributed 10.23 percent of Indonesia's non-oil and gas exports in the same period.

In addition, there is a coal business sector that also benefits from the condition of the depreciated rupiah. Like palm oil, coal is obtained from mines in Indonesia and exported to several countries.

BPS data shows that the value of coal exports in January-March 2024 reached 7.56 billion US dollars. Coal exports contributed to 63.47 percent of the total exports of mining and other sectors.

According to Dendi, there are also rubber and plywood industries that enjoy potential income increases. This is because both sectors also have export-oriented businesses.

Also read: 2024 Export Performance Will Contract 1.5 Percent

KOMPAS/TOTOK WIJAYANTO

Coal loading and unloading activities at Tanjung Priok Port, North Jakarta, on Tuesday (20/12/2022). According to BPS data, the volume and value of coal exports are respectively at 29.69 million tons and 4.16 billion US dollars.

Mohammad Faisal, Executive Director of the Center of Reform on Economics (CORE Indonesia) added that Indonesia has a historical record that local raw material exporters can benefit from the depreciation of the rupiah. During the monetary crisis in 1998, many plantation and mining exporters enjoyed an increase in income from the weakening of the rupiah against the US dollar.

"This phenomenon of rupiah depreciation has indeed caused many losses, but there are some who have benefited," said Faisal.

In line with Dendi, the commodities sector based on domestic natural resources and export-oriented will definitely enjoy the strengthening of the US dollar. Faisal also mentioned that the sector that will enjoy a performance surge is the export-oriented capture fisheries such as tuna. With abundant waters, the results of the capture fisheries are in demand in many countries.

The Chairman of the Indonesian Export Company Association (GPEI), Benny Soetrisno, added that the momentum of the rupiah's depreciation can be optimized by domestic exporters, especially those using local raw materials. "The production components and raw materials are valued in rupiah, but they are sold in US dollars. This is advantageous," said Benny.

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Benny also agrees that Indonesian natural resource commodity sectors that are export-oriented can take advantage of the strengthening of the US dollar against the rupiah. Additionally, there is another sector that can also benefit, namely tourism. With the arrival of foreign tourists who mostly use US dollars, the performance of the tourism sector can also be boosted.

Challenge

Despite being benefited by the phenomenon of the strengthening of the US dollar exchange rate, according to Benny, it does not necessarily mean that the export performance of these sectors can immediately increase. This is because global economic growth is also slowing down, which also triggers a decrease in export demand from destination countries.

"The thing that can quickly boost export performance is the market itself. No matter how the exchange rate is, but if the market moves quickly and the demand is high, then exports will definitely increase," he said.

On the other hand, Benny continued, he hopes for support from the government and financial industry to encourage exports. The government needs to simplify various regulations to make exports more vibrant. In addition, the financial industry also needs to provide competitive interest rates that ease the burden on exporters.

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