Imports Expected to Slump Due to Rupiah Depreciation

The Jakarta Globe, February 13, 2009
 

Ships at Tanjung Priok harbor in Jakarta waiting to be loaded. The Indonesian export industry is predicted to suffer the brunt of the global economic slowdown. (Photo: Crack Palinggi, Reuters)
 

In another sign that the country’s economy is slowing down, the country’s imports are expected to drop by nearly 15 percent in value this year because of the rupiah’s depreciation and slowing production. 

On the other hand, lower than expected growth, caused by the global economic turmoil, is credited for putting further downward pressure on the rupiah. 

“Industry is likely to reduce its buying [of imports] because the dollar is more expensive now [making foreign-made goods more expensive],” said H. Amirudin Saud, chairman of the Importers Association of Indonesia, or Ginsi. 

This means that industry players would buy more raw materials from the domestic market and import “only if absolutely necessary,” he said. 

The weaker demand for raw materials and capital goods, including machinery and other items, means that imports would fall to around $110 billion this year, a drop of nearly 15 percent from last year. 

The country’s export industry is predicted to suffer the brunt of the global economic slowdown and therefore is likely to reduce demand for raw materials and capital goods. 

Total imports value last year stood at $128.79 billion, data from the central statistics bureau agency show. Import of raw materials contributed to 76.95 percent of the total figure, while imports of capital goods contributed to 16.52 percent. As for the exports figure for the whole of 2008, Indonesia recorded a growth of 19.86 percent compared to 2007, thanks to windfall profits resulting from soaring commodity prices, such as crude palm oil, earlier in the year. Exports in 2008 came in at $136.76 billion, up from $107.80 billion in 2007. 

But the global economic slowdown is expected to push down export growth this year to between 1 percent and 2.5 percent, far below the government’s previous forecast of 5 percent and the lowest level for the first time since 1982. 

The downturn’s effect on exports also helped push down the rupiah, with the currency declining for a fifth week, its longest losing streak since November 2007. 

The rupiah declined 4.1 percent this month, the biggest loser among Asia’s 10 most-active currencies outside Japan. Bank Indonesia Governor Boediono said on Thursday the central bank would continue to “guard” the currency. 

“Concerns about the global economy are weakening the rupiah,” said Shinta Zaiharwani, head of treasury at PT Bank Maybank Indocorp in Jakarta. “The rupiah will stay below 12,000 with BI intervention.” 

The rupiah fell 0.8 percent this week to 11,770 per dollar as of 5 p.m. in Jakarta, according to data compiled by Bloomberg. The currency earlier dropped to 12,230, the lowest level this year. 

Boediono also said the currency would strengthen by year-end as investors waiting to see the outcome of the July presidential elections resume buying the nation’s assets after the polls. 

JG, Bloomberg