Weaker rupiah, high oil prices hit RI manufacturing sector

Indonesian manufacturers are feeling the pinch, as a weakening rupiah exchange rate against the United States dollar and a surge in oil prices lead to higher input costs for local industry.  

The rupiah has been on a downward trend in recent weeks due to uncertainty surrounding US monetary policy and geopolitical conflicts. The currency was priced between Rp 16,200 and Rp 16,300 per dollar since Tuesday after breaching Rp 16,000 per dollar at the start of the Idul Fitri holiday.  

Meanwhile, international oil price benchmark Brent Crude reached a six-month high last week before settling down 3 percent on Wednesday to US$87.29 per barrel, Reuters reported on Thursday. Some analysts expect it could still rise to $90 per barrel.  

Indonesian Textile Association (API) chairman Jemmy Kartiwa told The Jakarta Post on Thursday the plunging rupiah had put further pressure on an already struggling domestic textile industry amid tighter export markets and an influx of foreign goods.  

"The textile industry is highly dependent on the volume of imports," Jemmy explained.  

Indonesian Food and Beverage Producers Association (Gapmmi) chairman Adhi S. Lukman said on Thursday that both the exchange rate and oil prices had led to rising energy and logistics costs, which were then reflected in increased production costs.  

Pressure also come from raw materials, as the industry sources most of its inputs from overseas, he explained.  

“Some commodities have already seen price increases, like plastic pellets for food and beverage packaging,” Adhi pointed out, “while prices of raw materials that had already increased include grains, meat and milk.”  

“We are waiting for government intervention in the rupiah exchange rate and government efforts to reduce certain costs as compensation for the [increase in] production costs that have occurred,” Adhi emphasized.  

Shinta Kamdani, chairwoman of the Indonesian Employers Association (Apindo), warned that a prolonged weakening of the rupiah could force manufacturers to cut production volume as overhead costs rise.  

With 70 percent of total imports being raw and auxiliary materials and 10 percent being capital goods, manufacturing industry is particularly vulnerable to imports, she said on Thursday.  

“If the rupiah continues to weaken for more than a month, it will drive up selling prices in the market which could potentially trigger higher inflation, slower sales and reduced consumer spending growth, and even exceed the national inflation target if the government is unable to stabilize the exchange rate,” Shinta emphasized. 

The government is currently mapping out solutions to protect the industrial sector from escalating energy prices and the rupiah depreciation amid the ongoing conflict in the Middle East.  

The Industry Ministry has proposed incentives for raw material imports originating from the Middle East to mitigate supply disruptions for domestic industries, such as naphtha, which relies on supply from the oil-producing region.  

Industry Minister Agus Gumiwang Kartasasmita also suggested in a statement on Thursday some import relaxations to ease procurement of raw materials.  

In a bid to reduce reliance on hard currencies especially the US dollar, the government will also propose an increase in the use of local currencies for bilateral transactions carried out by business actors in Indonesia and partner countries especially within Asia.  

This initiative was intended to stabilize the rupiah exchange rate and enhance economic stability, he explained, citing greater trade potential between Asian countries.  

BCA chief economist David Sumual told the Post on Thursday that both the weaker rupiah and high oil prices were currently in “correction” phase amid an easing Middle East conflict. He projects Indonesia could still maintain inflation well within Bank Indonesia’s target, for now.  

David said increasing the use of local currencies with Indonesia’s trade partners would remain challenging, as businesses are still accustomed to conducting transactions in US dollars.  

“It will take time and thorough familiarization because the habit of using a specific currency is difficult to change,” David explained.  

Meanwhile, Ali Setiawan, head of markets and securities services at private lender HSBC Indonesia said in a statement on Thursday that the rupiah may get a breather after July, following the end of the seasonal dividend outflow season that starts in April.  This also assumes geopolitical risks are manageable and the US Federal Reserve maintains its expected rate cut cycle.  

The rupiah may gain more support later this year if the US Treasury yields decline as the bank expected, and investors could get more clarity on the incoming government. 

Source: The Jakarta Post 

Apple CEO says it is considering a manufacturing facility in Indonesia

Apple Inc will look into building a manufacturing facility in Indonesia, its CEO said on Wednesday after meeting President Joko Widodo, who hoped the tech giant would increase its local content by partnering with domestic firms. 

Apple chief executive Tim Cook arrived in Jakarta on Tuesday after visiting Vietnam. He met with Jokowi, as the president is popularly known, and will inaugurate its fourth developer academy on the island of Bali. 

"We talked about the president's desire to see manufacturing in the country, and it is something that we will look at," Cook told reporters after the meeting. 

Apple has no manufacturing facilities in Indonesia, but since 2018 it has been setting up app developer academies, which including the new academy have a total cost of 1.6 trillion rupiah ($99 million). 

Indonesia's industry minister, Agus Gumiwang Kartasasmita, who also attended the meeting, told reporters that if Apple decided to build manufacturing facility in Indonesia, it would have the capacity to produce for export. 

"We will discuss how Apple's facility in Indonesia could become a global supply chain," he said, adding that the government said that even if Apple didn't built a factory, it could partner with Indonesian companies to obtain components. 

Apple has met Indonesia's 35% local content requirement to sell its products by investing in developer academies, Agus said, but the government hoped that number could be pushed higher with a manufacturing facility. 

Apple has based much of its key manufacturing of iPads, AirPods and Apple Watches in Vietnam; suppliers for MacBooks are also investing in the country. 

Indonesia has a huge, tech-savvy population, making the Southeast Asian nation a key target market for tech-related investment. 

($1 = 16,235.0000 rupiah) 

Source: Reuters 

Indonesia Scraps Decision on Imported Goods Restrictions After Public Outcry

The government has reversed its decision to restrict imported goods carried by air passengers due to public outcry. 

The policy, aimed at safeguarding local industries, affected Indonesia's overseas workers and international shoppers, who faced import duties for exceeding the regulations. The public has raised worries over the policy, especially regarding apprehensions about potential extortion or illegal fees by airport authorities. 

The Trade Ministry introduced a regulation on imported goods last year, which officially took effect on March, 10. Under this regulation, passengers are allowed a maximum of 2 pairs of footwear and 2 bags. Textile products are capped at 5 pieces per passenger, while each passenger is permitted to carry electronics totaling $1,500, limited to 5 units. Additionally, mobile phones, headsets, and tablet computers are restricted to 2 units per passenger per year. 

"Trade Minister's Regulation Number 36/2023 concerning Import Policies and Regulations is revoked, and the import policy regulation is reverted to the previous regulation Number 25/2022. Consequently, there is no longer any restriction on the types and items belonging to Indonesian migrant workers," Head of the Indonesian Migrant Workers Protection Agency (BP2MI) Benny Rhamdani said in a virtual press conference in Jakarta on Tuesday. 

Parcels sent by Indonesian migrant workers are exempt from import duties for shipments valued up to $500 per shipment, up to three shipments per year, or up to $1,500 per year. 

If the value of the goods exceeds the specified amount, the excess value will be treated as regular mail and subject to a 7.5 percent import duty. 

Meanwhile, international aircraft passengers (non-migrant workers) are no longer bound by the regulations stipulated in the 2023 Trade Minister Regulation. However, Trade Minister Zulkifli Hasan said that the Finance Ministry will formulate a new regulation regarding the types and amount of restricted carried items. 

Furthermore, the government will try not to impose restricted importations, and such restrictions would only apply to goods affecting domestic industries. 

Source: Jakarta Globe