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New measures set to stabilize rupiah
The government is to put more restrictions on certain imports as part of its efforts to safeguard the rupiah from depreciating further and narrow the country’s current account deficit
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he government is to put more restrictions on certain imports as part of its efforts to safeguard the rupiah from depreciating further and narrow the country’s current account deficit.
After holding a cabinet meeting led by President Joko “Jokowi” Widodo in Jakarta on Tuesday, the government took a drastic move by halting projects of state energy giant Pertamina and state electricity firm PLN that had yet to reach financial closure.
In addition, the government will also go through lists of imported capital goods submitted by Pertamina and PLN to the Energy and Mineral Resources Ministry to determine whether imports can be postponed, said Finance Minister Sri Mulyani Indrawati.
She added the Energy and Mineral Resources Ministry would not give permission for the two state-owned enterprises (SOEs) to import capital goods for the next six months.
“PLN and Pertamina will be asked to scrutinize their imported components because the two SOEs have a high volume of imported capital goods components,” she said after the meeting. “We will be firm with these two SOEs, so that imports can be controlled.”
Sri Mulyani said the government also aimed at controlling the volume of imported consumers goods, particularly those that had local equivalents.
“If the demand for such [consumers] goods increases and it is not strategic for the economy, then [imports] will be controlled,” she said.
Sri Mulyani said the Finance Ministry, together with the Industry Ministry and Trade Ministry, would team up to identify more than 500 imported consumer goods that could be replaced by local substitutes.
The Finance Ministry’s fiscal policy head Suahasil Nazara said the import reduction measures for consumer goods were under discussion and that the ministry would issue a regulation on the matter.
“We are signaling that imported consumer goods that have locally-produced substitutes would be identified for an additional import income tax or duty,” he said.
Indonesia imported consumer goods worth US$8.18 billion during the first half, up 21.64 percent compared to $6.73 billion over the same period last year, data from Central Statistics Agency shows.
Despite the increase, the share of consumers goods to the country’s total imports were relatively small at 9.19 percent, compared to the share of raw materials and capital goods at 74.67 percent and 16.14 percent respectively.
The rupiah appreciated slightly by 0.16 percent to Rp 14,584 per US dollar on Tuesday from Rp 14,615 a day earlier. After depreciating in the past few months, the rupiah is facing new pressures from global concerns that Turkey, also an emerging market, is heading toward a serious crisis.
Meanwhile, the current account deficit widened to $8 billion in the second quarter from $5.7 billion a quarter earlier. The latest figure was equal to 3 percent of the country’s GDP.
The deficit in the current account means the country imported more goods and services compared to those it exported, adding to currency vulnerabilities as it needs foreign capital to fulfill demand in the domestic foreign exchange market.
The Jokowi administration has implemented various policies to stabilize the rupiah and narrow the current account deficit. It is set to expand the use of 20 percent blended biodiesel (B20) to non-subsidized fuel on Sept. 1.
The biodiesel policy is expected to save some $2.3 billion in foreign exchange from Sept. 1 until year-end, said Coordinating Economic Minister Darmin Nasution after Tuesday’s Cabinet meeting.
Jokowi was expected to sign a presidential regulation as the legal basis of the B20 expansion, which would be followed by a Energy and Mineral Resources Ministerial Regulation detailing the technical aspects of the biodiesel expansion, Darmin added.
Darmin estimated that the policy would create additional biodiesel demand of up to 4 million kiloliters until year-end.
Research director at the Center of Reform on Economics Indonesia Piter Abdullah said the government’s move, particularly in the B20 expansion, showed it was serious in addressing the problems in the country’s foreign exchange market. He expected that the government would be consistent in the implementation of measures and support the country’s current account.
Maybank Indonesia economist Myrdal Gunarto voiced a similar opinion, saying that the current account deficit would narrow to 2.5 percent of GDP by year-end, positively impacting the rupiah against the greenback.
