Economic Minister Hatta Rajasa Says Government Won't Join a Currency War
Recent concerns about a global currency war, which is considered to threaten worldwide economic and financial stability, has prompted Indonesia's Economic minister Hatta Rajasa to ensure that Indonesia will not participate in such a tactic. The Central Bank of Indonesia (Bank Indonesia) has in fact been selling US dollars to support the IDR rupiah, which has been under growing pressure lately due to Indonesia's current account deficit and the risk of capital outflows.
The rupiah lost 5.9 percent against the dollar in 2012. This year, it has lost about 0.1 percent against the greenback so far. It could be argued that Indonesia deliberately lets its currency weaken in order to boost exports as it recorded its first ever trade deficit in 2012. Imports grew, while exports declined. The country's current account deficit stood at US $24.18 billion last year.
A weakening rupiah contains certain advantages for the country's current account balance. It makes exports more competitive, while imports become more expensive. Analysts therefore assume that Bank Indonesia currently favors a limited decrease of its currency's value.
Global concern emerged as Japan's yen weakened significantly since September 2012. By increasing liquidity and depreciating the overpriced yen, it aims to avoid continued deflation.