Evaluating the Economic Stimulus

Oleh

· 3 menit baca

The government has formulated a number of measures to curb the current account deficit through a number of efforts such as to increase exports and to reduce imports.

Since January 2018, rupiah exchange rate has continued to depreciate. The rupiah exchange rate continues to weaken from 13,300 per US dollar in January, this year.

On Friday, the rupiah exchange rate slightly rose to 14,483 per US dollar after falling to 14,520 per US dollar on July 20, according to the Jakarta Interbank Spot Dollar Rate (Jisdor).

Over the next six months, the rupiah exchange rate will likely continue to weaken if the situation does not change. The cause is that Indonesia’s widening current account deficit, which has occurred since 2012 because the demand for foreign exchanges is higher than the supply.

The rupiah began to fall sharply when the US central bank began to normalize its financial policy by raising its domestic interest rate starting this year. The policy has caused the outflows of global funds from the financial markets of many countries, including countries with emerging economies like Indonesia, to the United States.

The pressure on developing countries is growing after the US introduced a new policy to improve its trade balance with its trading partners through the imposition of import tariffs. China has become one of the targets of the policy, which has greatly affected the global trade currently being dominated by supply chain systems.

The pressure on the rupiah is likely to continue. The US central bank will still raise its benchmark interest rate at least once again, estimated in September. We also need to be prepared for the reaction of the central bank of China which will let its currency to weaken to make Chinese products cheaper.

Amid these pressures, the government needs to formulate a policy mix to turn things around. Short-term measures such as to increase the number of foreign tourists, to reduce imports of consumer goods and to evaluate national projects with the potential to erode foreign exchange, as well as to increase the use of palm oil in the biodiesel to 20 percent.

In order to increase exports, Indonesia can possibly take the opportunities resulting from the US-China trade war. Keep in mind, the US government wants us to open the market for US products because the country suffers a trade balance deficit against Indonesia. Raising exports to the US could also result in the increase in our imports from the US.

Amid the planned implementation of such efforts, we are reminded of the 16 packages of economic stimulus which have been issued since Sept. 9, 2015. It will be better for the government to first evaluate the implementation of the 16 packages before making new programs and incentives.

In the current situation, the consistency and coherence of various policies are increasingly important to increase the business confidence, an important factor to attract foreign exchanges.

The contents of the package have promised export incentives, including for medium and small businesses, to increase investment in the country, such as tax facilities, and credit expansion for micro,

small and medium-scale enterprises (MSMEs). The implementation of the economic policy packages should become a benchmark for the performance of each related institution.

Editor:

rupiah exchange rate