T

he US dollar is no longer an accurate benchmark for the rupiah because the country now has “more relevant” trade activities with Japan and China, says President Joko “Jokowi” Widodo to demonstrate how all was well with the local economy despite a recent drop in the value of Indonesia’s currency.

Jokowi called on 100 economists in a gathering on Tuesday to not judge the Indonesian economy based on the rupiah’s exchange rate with the US dollar, which would become more reflective of the US economy and its potential for protectionist policies after Donald Trump is inaugurated as president.

“I don’t think that the exchange rate between the rupiah and dollar is the right basis and it would be more accurate to base it on the exchange rate with one of our more relevant trade partners,” said the President, acknowledging the recent drop of the rupiah against the greenback.

“The more relevant measure is the rupiah rate against [the currencies of] our major trade partners, Japan and China,” he added.

The US sits in third position in terms of international trade with Indonesia, including exports and imports, with total value of US$18.8 billion from January to October this year, accounting for 9.3 percent of overall trade between Indonesia and the world, data from the Central Statistics Agency (BPS) shows.

China and Japan are Indonesia’s top two trading partners with $35.5 billion and $21.5 billion, respectively, in the same period, accounting for about 17 percent and 10.6 percent of international trade with Indonesia.

“It would be misleading to measure the Indonesian economy using the US dollar as a standard, when our economy is actually fine,” said Jokowi, a former furniture businessman and exporter.

The rupiah went from a little more than 13,000 per dollar to 13,500 within a month in November, depreciating by around 2 percent following Trump’s win, which spurred a rally of the US dollar against currencies around the world as markets expect Trump’s policies will create faster inflation and lead to higher interest rates.

Coordinating Economic Minister Darmin Nasution said that while the US dollar remained the main currency reference for global trade, President Jokowi wanted to emphasize bilateral trade relations and the exchange rates with the relevant trading partners.

“What the President means to say is that essentially the exchange rate of one country to another is really determined by their trade,” Darmin said.

Bank Indonesia economic and monetary policy director Juda Agung explained that the central bank always compared the rupiah to other foreign currencies, not only the US dollar.

“A real effective exchange rate is the weighted average of our country’s trade relative to a basket of other countries. In practice, we never look at just one currency, we look at many,” Juda said.

Meanwhile, Bank Mandiri economist Andry Asmoro said that Jokowi was merely trying to show that the Indonesian economy was still stable despite the volatile exchange rate caused by global influences.

“He was trying to explain that the volatility is due to global sentiment and our economy is relatively stable. The story is that Indonesia is not the only country with a weakening currency, but it is happening with several other emerging countries too,” he said.

Furthermore, it was nothing short of impossible to move away from the US dollar in the short term, especially since many of Indonesia’s trading partners, including China, still used the dollar, Andry said.

— JP/Fedina S. Sundaryani