To Strengthen Economic Resilience

KOMPAS/RADITYA HELABUMI

A salesperson serves consumers who will exchange money at one of the money changers in Jakarta, Friday (05/10/2018). Based on the Jakarta Interbank Spot Dollar Rate’s reference rate, the rupiah\'s middle rate weakened to Rp 15,182 per US dollar.

The continued depreciation of the rupiah has shown that Indonesia is still vulnerable to an external pressure or a global factor despite its strong economic fundamentals.

Therefore, addressing the main sources of vulnerability is a logical answer so that in the future Indonesia will be more resistant and resilient in facing the possibility of similar global economic/financial turmoil. In this case, all parties agree that overcoming the current account deficit is a must. The rupiah has become more vulnerable because we have not been all out in overcoming the current account deficit that has haunted the economy during the past five years.

If the problem related to the current account deficit is not resolved, Indonesia will be getting more vulnerable to the withdrawal of foreign funds and becoming the target of speculation. We, therefore, must fix the problems in the trade balance and capital account. Reducing the current account deficit means that during the current turbulent situation, we should avoid becoming a big spender.

Based on analyses from experts and institutions, such as the World Bank and IMF, the government is considered to have reacted swiftly and decisively in coping with these various pressures. They also appreciate the government\'s prudential policy in managing the economy. However, there is a big task which has not been completed. The failure makes us unable to maximize the potential that we have, and are more vulnerable to global turmoil.

These include the inability to boost exports and also to reduce dependence on external financing sources and short-term portfolio investments. Boosting exports is not only enough by improving the structure and composition of exports that have existed so far, but must be able to improve overall competitiveness and overcome the deindustrialization problem.

The continued decline in the contribution of the manufacturing sector to GDP, the dominance of primary commodities and semi-finished products with low added value in the composition of national exports, reliance on exports on raw materials and imported capital goods, low contribution in global supply chains, and reliance on traditional export destination markets are all the indications of the deindustrialization in the country which makes exports difficult to increase.

It indicates that we have ignored our main works because the deindustrialization has taken place for the past 20 years, and as the consequence, we have been left behind other countries. The structural reform is the keyword to solve the problems.

In terms of the capital account, we lag behind neighboring countries in attracting foreign direct investment and reducing dependence on short-term portfolio investments. We also have not maximally boosted foreign exchange supplies from tourism and remittances. We also lack the sources of domestic financing, both from tax and investment. We, therefore, must expand the domestic investor base and further deepen the financial markets.

In coping with the external pressure, which will likely continue in the future, especially as a result of rising US interest rates, the escalating US-China trade war, as well as rising crude oil prices, we still need introduce short-term measures. Among other things are the policy on the conversion of foreign exchange earnings from exports, optimizing the existing financial instruments such as hedging and bilateral/regional swap facilities, as well as various breakthroughs in export product innovation and market expansion.

In facing the turbulence in the global economy, building up the confidence through the issuance of a credible policy, and at the same time fixing the economic structure to make it healthier and no longer vulnerable to external pressure is quite important.