Business World Worries Rupiah Weakening Will Hamper Industrial Competitiveness

JAKARTA, KOMPAS – The fluctuation of the rupiah exchange rate, which tends to weaken, has created uncertainty for the business sector and has the potential to trigger an increase in the prices of domestic goods. Business actors require incentive policies to enhance the competitiveness and productivity of domestic industries.

The Chairperson of the Indonesian Business Actors Association (Apindo), Shinta W Kamdani, stated that business actors deeply regret the depreciation of the rupiah's exchange rate that has occurred in recent months. This situation is highly concerning, considering the rupiah had once reached its lowest level during the Covid-19 pandemic.

"As a result, confidence in doing business or investing in Indonesia has also weakened, even though Indonesia still has a relatively stable domestic market. Such a weakening exchange rate is very, very unfavorable for business actors because of its tendency to create cost-push inflation on production costs," he said when contacted from Jakarta, Friday (7/3/2025).

Citing data from the Jakarta Interbank Spot Dollar Rate (Jisdor) of Bank Indonesia, the exchange rate of the rupiah once reached Rp 16,575 per US dollar on February 28, 2025. Previously, the rupiah had approached the range of Rp 15,000 per US dollar in September 2024 and then weakened throughout 2025, remaining above Rp 16,000 per US dollar.

The fluctuation of the rupiah, which tends to weaken, ultimately puts pressure on business actors in sectors with high dependency on imports, particularly manufacturing. As a result, productivity and competitiveness also decline, limiting business expansion in the formal sector due to the increasingly uncompetitive business burden and hindering downstream industry agendas.

On the other hand, business actors operating in the extractive and export-oriented sectors, such as mining, will relatively benefit. However, these benefits overall will remain low or even nonexistent, as the weakening of the exchange rate will also trigger an increase in domestic market prices for various goods and services.

We hope that the government will intervene in the national business or investment climate by increasing the efficiency and competitiveness of various universal business burdens in Indonesia, simplifying business and investment licensing, and increasing affordable business financing and export facilitation.

Shinta opines that the depreciation of the rupiah is not solely caused by the trade war but also due to the lack of stimulus in boosting state revenue, both from exports and foreign direct investment (FDI). As a result, the current account deficit continues, accompanied by the weakening of the exchange rate, even though the global US dollar exchange rate is declining.

Based on the 2024 Indonesian Balance of Payments data, the current account deficit was recorded at 8.85 billion US dollars or equivalent to 0.6 percent of the gross domestic product (GDP), a fourfold increase compared to the 2023 period, which recorded a deficit of 2.04 billion US dollars or 0.1 percent of GDP. This widening was primarily influenced by the shrinking surplus in the goods trade balance.

In 2025, Bank Indonesia (BI) estimates that the current account deficit will remain within the range of 0.5-1.3 percent of GDP. On the other hand, the International Monetary Fund (IMF) projects that Indonesia's current account deficit will widen to 2 percent in 2025 and reach 1.4 percent in 2029.

Therefore, Shinta continued, an effective export and FDI stimulus policy is needed to support the improvement of the current account position and the strengthening of the exchange rate. In this case, the government is expected not to only rely on increasing the benchmark interest rate to increase the attractiveness of government bonds and foreign exchange policies from natural resource exports (DHE SDA).

According to Shinta, these instruments are not ideal intervention instruments for business actors. Although they can increase foreign exchange earnings in the short term, these policies tend to suppress productivity and create a decline in the competitiveness of domestic industries in the global market.

"We hope that the government will intervene in the national business or investment climate by increasing the efficiency and competitiveness of various universal business burdens in Indonesia, simplifying business and investment permits, and increasing affordable business financing and export facilitation," he said.

These efforts will in turn support more significant export performance and FDI receipts, so that Indonesia's structural competitiveness will increase. Thus, fundamentally, Indonesia's current account will be more resilient to deficits and exchange rate depreciation tends to be able to be contained, even if there is external pressure.

Similarly, Executive Director of the Center of Reform on Economic (Core) Indonesia Mohamad Faisal said that the depreciation of the exchange rate has a big impact not only on consumers but also on business actors. This is because many industries still depend on imported supplies, both energy, raw materials, and components, thus increasing production costs.

"For certain industries that already have difficulty in accessing the market, raising prices as a result of increased production costs caused by the weakening rupiah exchange rate is not easy, because the market, especially the middle class, is experiencing a decline and is also saturated. Therefore, this does need to be anticipated by the government," he said.

On the other hand, the government and BI must be more serious in making efforts to stabilize the exchange rate in the midst of a difficult situation like this. From the government's side, the implementation of fiscal policy, such as in budget efficiency, needs to be careful.

According to Faisal, the government should be allocated to provide incentives for industry. In this case, the incentives given do not have to be in the form of spending or budgeting funds, but from the side of state revenue or taxes, so that a mix of fiscal and monetary policies can be realized.

BI reported that Indonesia's foreign exchange reserves at the end of February 2025 were US$154.5 billion, down from US$156.1 billion at the end of January 2025. This was influenced by, among other things, the government's foreign debt payments and the stabilization of the rupiah exchange rate as BI's response to the uncertainty of the global financial market which remains high.

The foreign exchange reserves position is equivalent to financing 6.6 months of imports or 6.4 months of imports and government foreign debt payments. In other words, the foreign exchange reserves position is above the international adequacy standard of around 3 months of imports.

The direction of Indonesia's foreign exchange reserves will depend on external financial conditions, global monetary policy, and domestic economic fundamentals. Foreign exchange reserves are also overshadowed by several risks, such as a global economic slowdown, geopolitical tensions, and tightening global monetary conditions, which could reduce investor interest in developing country assets.

Senior Economist of PT Samuel Sekuritas Indonesia Fithra Faisal Hastiadi said that the large pressure on the rupiah exchange rate was reflected in the decline in Indonesia's foreign exchange reserves. The foreign exchange reserves position is the lowest level since November 2024.

"Although the recent decline in foreign exchange reserves reflects external pressures, Indonesia's foreign exchange reserves position remains under control. The focus is on ensuring stability in the currency market, maintaining investor confidence, and monitoring global financial developments that may affect the adequacy of foreign exchange reserves and exchange rate movements," he said.

According to Fithra, the weakening of the exchange rate is inseparable from the pressure of tightening global monetary policy and external uncertainty. The US Central Bank (The Fed)'s hawkish attitude has resulted in foreign capital outflows from emerging markets and increased demand for the US dollar, thus depressing the exchange rates of developing countries, including the rupiah.

On the other hand, Indonesia's export growth is expected to slow in the coming months as prices of key commodities, such as coal and nickel, decline and global demand slows due to weak economic growth. This poses a risk to Indonesia's trade balance, which in turn could affect the pace of foreign exchange reserve accumulation.

Going forward, the direction of Indonesia's foreign exchange reserves will depend on external financial conditions, global monetary policy, and domestic economic fundamentals. Foreign exchange reserves are also overshadowed by several risks, such as a global economic slowdown, geopolitical tensions, and tightening global monetary conditions, which could reduce investor interest in developing country assets.

Meanwhile, Head of BI Communication Department Ramdan Denny Prakoso said that the foreign exchange reserves still support the resilience of the external sector and maintain macroeconomic and financial system stability. Going forward, BI views the foreign exchange reserve position as adequate to support the resilience of the external sector.

"The export outlook remains positive and the capital and financial account balance is expected to continue to record a surplus, in line with investors' positive perceptions of the national economic outlook and attractive investment returns, supporting the maintenance of external resilience," he said in a press release.