Editorial: Boosting Exports in Indonesia Is Appropriate Move
Indonesia has earned kudos from the global financial and investment community for its sound fiscal and monetary management, and rightly so. The country’s strong economic growth and investment grade rating from two major agencies have been underpinned by the health of its fiscal position.
But as the country’s current account deficit grows, Bank Indonesia has instituted a policy to allow the rupiah to depreciate in a controlled manner during the next six to 12 months. This is a sound move as it will help rebalance the current account.
The central bank said in a statement that it would seek to stabilize the rupiah, which has weakened 4.5 percent so far this year, to reflect fundamental conditions to support adjustment in the country’s external accounts. Indonesia posted a record current account deficit of $6.9 billion in the second quarter, equivalent to 3.1 percent of the country’s gross domestic product. It widened from a revised $3.2 billion, or 1.5 percent of GDP, in the first quarter.
Reining in the current account deficit by boosting exports is the right move. A weaker rupiah will make Indonesian exports more competitive. But even as it pursues this policy, the central bank should keep a close eye on inflation so as to not raise the price of goods and services at home.
There is also a need to ensure that imports are capital goods that support manufacturing and not primarily consumer items. This will aid sustainable economic growth rather than just boost short-term consumer spending.
Consumers are already worried about rising prices. A survey by Danareksa Research Institute this month showed consumers were less confident about the economy in July than earlier in the year.
The Indonesian economy is still sound.
But given the uncertain external factors, Bank Indonesia is right to take steps to check the growing current account deficit.