JAKARTA - The Executive Director of the Center of Reform on Economics (Core) Indonesia Mohammad Faisal assessed that industries could start looking for and partnering with local suppliers as an alternative (substitution) for imported raw materials to face the impact of the weakening of the rupiah exchange rate against the US dollar.
Meanwhile, the rupiah exchange rate today at 11.02 WIB weakened 60 points or 0.34 percent to Rp17,728 per US dollar compared to the previous closing at the level of Rp17,668 per US dollar.
"What should the industry do to mitigate the impact? Of course, usually if the exchange rate continues to decrease, (industry) seeks alternative supplies from within the country that are not too much affected by the weakening of the exchange rate, and also diversifies the supply chain," said Faisal as quoted by ANTARA, Tuesday, May 19.
Faisal assessed that the weakening of the rupiah would have an impact on increasing production costs, especially for industries that are still dependent on imported raw materials such as the chemical industry to pharmaceuticals.
In addition to disruptions in the supply chain, there has also been an increase in raw material inflation from the country of origin or importer, as well as an increase in distribution or logistics costs due to the world oil price which is also fluctuating.
"So it means there is a greater increase in production costs. Although it is not uniform among all business actors in the industry, of course (the increase) is still large," said Faisal.
With the increasing cost of production, he continued, of course the industry responds by carrying out efficiency, not least the possibility of reducing the number of workers.
Faisal added that the potential for this labor reduction could be even greater if the sales or market also decreased.
"So we know that from the pressure there is also on the downstream side, on the market side. So if sales are down, where it is down, it will automatically reduce the number of workers. So there is indeed the potential for termination of employment or layoffs," said Faisal.
In addition to mitigation from the industry players, he said the government must also play a direct role through a series of supporting policies to anticipate possible bad effects due to the weakening of the rupiah exchange rate against the US dollar.
"In my opinion, one of the factors of the weakening of the exchange rate is not only from global factors but also domestic factors. Macroeconomic stability, including fiscal problems, must be maintained by the government, including fiscal discipline which is also in the spotlight," said Faisal.
"In addition, it includes governance in terms of implementing priority programs to increase or maintain confidence in the Indonesian economy, as well as the credibility of government policies," he added.
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