How Does Rupiah Weakening Affect Export/Import

Media Release - Jakarta, 01/08/2018, 12:36

*Bambang Sabekti, professional in shipping and maritime industry

In June 2018, Tanjung Priok international throughput/volume declined 40% month to month. Why?


By : Bambang Sabekti, professional in shipping  and maritime industry


In June 2018 International volume in Tanjung Priok declined 40% compared with previous month, proving the forecast earlier predicted and a normal drop during long holiday of Idul Fitri as took place other years earlier. And, in July most likely the international volume for export and import in Tanjung Priok has back to normal. However, the annual performance was still positive. The June YOY international volume increased around 11% (compared to June 2017).


Every year, during the holidays of Idul Fitri /Lebaran, the volume of international trade always faces a decline, compared to previous month. Why? That is because most imported goods are raw / auxiliary materials for domestic industries. On the other hand, exports dropped significantly in line with the limited working days due to Lebaran holidays.


Importers tend to accumulate the raw materials they need several months before Ramadan arrives, in preparation for an increase in demand ahead of Lebaran.


In view of trade balance, unfortunately, the June 2018 performance likely faced a deficit due to no significant attempt to suppress imports or boost exports, so far. Anticipating such condition, the government is reviewing the plan for the establishment of a special unit in handling import export issues to formulate more precisely what is done in the field of exports and imports, thus narrowing the trade deficit.


This task force was formed due to the heavy pressure on the rupiah due to the rise in interest rates in the United States. If the balance sheet is negative, rupiah is difficult to strengthen. Moreover, the government wants to answer the issue of world trade, namely trade war between the United States and China. Many countries are experiencing negative running transactions. Look at Brazil, India, Africa, but the trade balance is not much negative.


Import performance in recent months increased quite strongly. Import is referred to imports of strategic tools, infrastructure needs, and food needs before Idul Fitri. The high dependence on imported raw materials and export performance that still rely on raw commodities makes export performance is not maximal. Majority of Indonesia's main export commodities recorded an increase in exports during January-May this year, but it is not significant if considering the weakening factor of the rupiah.


The manufacturing sector suffered from the problem of high imported raw material dependence. As a result, when the rupiah weakened, the cost of imported raw materials became higher, thus depressing the industry players.


With still large scale of imports, the weakening of the rupiah becomes a small tsunami for the manufacturing sector, even for export-based manufacturing.


There is also a fact that there was no significant increase in leading export commodities, while on the other hand there is a drop of demand from some destination countries due to the trend in the international market.


The value of exports did grow moderately, but the volume remained or grew the most. The reason is mostly due to the condition of global demand, not the rupiah exchange rate. As long as global demand is still sluggish, export activity will not change.


Although there are some export-based industries that benefit from the depreciation of the rupiah, many industries still fail to use it to boost exports.


The most profitable manufacturing industries are those using domestic raw materials and not using imported raw materials and of course this is very limited.


Not to mention, the competitiveness of Indonesia's mainstay export commodities are still inferior to neighboring countries. There are still many delayed international trade cooperation plans which also make potential export commodities difficult to develop.


In addition, Indonesia's export dependence on raw commodities is also still high. As a result, when commodity prices are low, export contribution from the sector is also low.


A number of business actors in the sector also agreed that the momentum of rupiah weakening is not utilized optimally. As a result, the value of exports did not increase significantly.


What to Do?


The biggest problem in our economy is the current account deficit. Trade deficit and also services make us always short of foreign exchange.  There’s no other way if we want a more stable economy and the value of rupiah is not turbulent. We must improve the current account balance, by increasing domestic production, increasing exports, reducing imports and improving service handling capabilities such as sea transportation.


We must make all effort and change the paradigm of the importing country into an exporting country. It is advisable if our businessman to promote the real sector and encourage our people to use domestic product. There’s an important thing to be done to re building up manufacturing industry. We once had an advantage in the textile and textile product, plywood, paper and pulp industries.


Unfortunately some slumped and consequently we lost superior export product. Currently the Ministry of Industry has set five industry groups that will be superior such as food, textile, textile product, electronics, and chemical.


One more thing we need to improve is the service industry. As a maritime country we need a strong position in sea transportation to carry our export good, as so far more than 90% our export cargo  has been loaded on foreign shipping companies and under free on board ( fob) basis.  We know it is not the easy one as this sector needs very big working capital, advance technology, and professional human resources since the competition in global shipping industry is very tight.  


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