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The trade balance and why we can’t buy nice things
The government has again been resorting to curbing imports in a bid to manage the current account balance, but this policy has not had a significantly positive impact on either the trade balance or manufacturing growth; rather, studies show it can have the opposite effect and eventually reduce exports.
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Empty fruit bunches (EFBs), biomass produced as a by-product of palm oil processing, are discarded in a pile in this stock photo from 2017. (Shutterstock/KYTan)
O
ver the past week, two phenomena went viral. The first was the rupiah exchange rate, which depreciated to 16,000 per United States dollar, a rate we haven't seen since the COVID-19 pandemic. The second was the government’s effort to reduce imports by issuing several regulations.
Various policies have gone viral, from the Trade Ministry’s regulation on carry-on restrictions to the Industry Ministry’s latest technical recommendation to limit imported electronics.
But reducing imports means Indonesian consumers won’t be able to access nice things, like Japanese trains and locomotives or Korean electronics made in Vietnam.
These issues are often discussed separately, but they are actually connected.
The rupiah’s depreciating trend has actually been observed since October 2023, and a recent opinion piece in this newspaper by Fithra Faisal, my colleague at the University of Indonesia, elegantly discusses the catalysts.
Strong US economic data has helped that country’s central bank, the Federal Reserve, to keep interest rates high, all the while Bank Indonesia (BI) kept its interest rates relatively low. The difference between the two central banks’ rates has never been this low.
Another factor is the Islamic fasting month of Ramadan and Idul Fitri holiday season, which increased general demand for imports.
