(This Researcher's publication is available in English only.)
by Kiki Verico
Abstract:
One of the most important variables in the economies of emerging countries such as Indonesia is exchange rate stability. An unstable exchange rate makes it difficult for almost all businesses to plan their business and a large weakening of the Rupiah will increase inflation which reduces people's purchasing power. In the balance of payments, the stability of the exchange rate and capital account is greatly influenced by the current account balance. A study found that in Indonesia, in the long term (Johansen Procedure), the current account balance influences the real exchange rate while in the short term (VECM) the current account balance influences the nominal exchange rate. The study also found that in the current account balance which influences the exchange rate is the trade transaction balance. Indonesia's trade transaction balance relies on surpluses from trade in goods, especially agricultural products, oil and gas. Product prices in the primary sector are very vulnerable because they depend on fluctuations in petroleum prices so that basically, Indonesia's current account balance is very dependent on trade transactions for manufactured products. Another study found that in manufacturing trade the real sector influences capital flows more than vice versa. Therefore, to maintain positive long-term economic growth and a stable exchange rate, Indonesia must increase trade competitiveness, especially in the manufacturing sector. This article will examine the challenges and opportunities for Indonesia's international trade towards 2030 and beyond.
