Jakarta – Indonesian exports, which generated about US$54.5 billion in trade surplus last year, up by 50 percent from 2021, are widely predicted to decline this year due to the weakening commodity market as the risks of economic recession have pressed down global demand for goods.
But we think the inordinately big concern over the end of the commodity boom and its likely adverse impact on the rupiah exchange rate is misplaced. True, the growth of the export value has begun to shrink since September, but a closer reading shows that the decline in commodity prices is still gradual and not all commodities suffer from falling demand. For example, the demand for Indonesian coal, palm oil and several other minerals will remain fairly strong amid the prolonged Russia-Ukraine war.
Hence, we will still enjoy a trade surplus though not as big as that of last year, especially because imports this year are also predicted to decline slightly due to the expected lower economic growth, from about 5.2 percent last year to a range of 4.9-5.1 percent this year.
Analysts therefore expect the current account balance (imports and exports of goods and services and payments made to foreign investors) to turn to a manageable deficit of only around 1.12 percent of gross domestic product (GDP) this year from an estimated surplus of 1 percent of GDP in 2022.
Encouraging also is the level of Indonesian foreign reserves, which were estimated at $137 billion last month. Though down from $145 billion a year earlier, the reserves are still safe as they hold the equivalent of financing six months of imports and government external debt services. This is well above the international reserve adequacy standard of three months of imports.
We think down-pressures on the rupiah will be generated more by the growing concern over a global economic recession, which is setting off negative investment sentiment in emerging economies like Indonesia and causing investors to move to safer places.
It is therefore quite crucial for Bank Indonesia to focus its monetary policy this year on stabilizing the rupiah exchange rate and managing inflation toward the target corridor as part of its mitigation measures against the impact of global spillovers.
BI, which is holding its monthly monetary policy meeting today, also should see to it that the interest rate, differential with the United States interest rate, is still attractive to portfolio investors as the US Federal Reserve will most likely continue to increase its policy rate, now 4.25-4.5 percent, to check inflation at its target of 2 percent. In this context, the market has expected that the BI policy rate, which is 5.5 percent now, will gradually be increased to 6 percent in the first half.
The plan tossed recently by President Joko "Jokowi" Widodo to offer incentives for exporters to encourage them to keep their export dollar earnings within the country for a longer period of time is, to a certain extent, worthwhile to be implemented as long as it does not amount to outrightly rigid foreign exchange control.