REPUBLIKA.CO.ID, By: Gus Fendi/Economic Researcher at Galesong Institute, Jakarta
The measure to devaluate Yuan by the People's Bank of China (PBoC) since the last five months is a policy to give a signal to the market that the situation of China's economic growth is in an alarming condition in line with the slowdown in investment, consumption, and export. As a result, these policies have some impacts on the movement of currency and capital markets in the world, including Indonesia.
Deputy Governor of Bank Indonesia (BI), Perry Warjiyo (11/12) in Jakarta saidthat currency movements Indonesia and several other developing countries are weakened due to various external pressures, one of which is caused by the economic slowdown in China and the reactions of market participants to the decision of the Chinese government to depreciate Yuanby widening the currency band.
Widening the range of the currency is done by the Chinese government to reduce capital flight, increase the competitiveness of the Yuan in order to boost exports, improve the competitiveness of domestic products for imported goods and to protect investors in the country.
Generally speaking, the value of China's exports has dropped 15% in the first quarter of 2015 compared to the same period in 2014.Therefore, if the value of the yuan isdown against the US Dollar, then automatically export value of China noted in US Dollar will rise, and will eventually drive index of Shanghai Stock Exchange (SEE) up.
However, it is feared to trigger the entry of Chinese products into countries that are China’strading partners including Indonesia. Deputy of production statistics of the Central Statistics Agency (BPS) LumaksonoAdi said thatthe government should increase vigilance in case there isan invasion of Chinese products in Indonesia’s market due to the weakening of the yuan.
This devaluationis a toughest challenge for Indonesia's future trade balance with China after the devaluation of the Yuan because the lowerprice of Chinese products cancause a deficit. In addition, it can cause Indonesia's imports from China tohike. This is the risk that an import dependant country should bear.
Deputy for Macroeconomic and Financial of Coordinating Ministry of Economy Bobby Hamzar Rafinus said that this is a condition that makes Indonesia must improve product competitiveness. Else, the Indonesian trade deficit with China will be even greater.
As quoted from neraca.co.id, according to data of the trade balance in November, Indonesia has a deficit of US $ 346.4 million. This was the first deficit happened in 2015 although the cumulative over the period from January to November 2015 showed a surplus trade balance. However, the estimated deficit increase due to thesurge of Chinese products that flow into and dominate the market, both traditional and modern supermarket, with an average cheaper price.
Should this not be immediately anticipated by the government, Indonesia will only be the market of the Chinese industry. Hence, domestic industries will suffer due to the irinability to compete and nationally, our economy will be in a great danger.
Economist of Bank Permata, Josua Pardede(19/8) in Jakarta said that China's export and import activities with Indonesia are quite significant. Therefore, head mitted that yuan devaluation has made Chinese products tobe more competitive. Thus, the government need to take some protection measure to import-subtitution industries such as put some control on imports with China so that our domestic products can survive.
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