Jakarta. Indonesia must improve logistics and business licensing in its “underdeveloped manufacturing sector” in order to truly reap the benefits of a stronger US dollar in its export activities, a World Bank economist said.

“Is the rupiah’s depreciation sufficient to promote exports? It certainly will help but it’s not sufficient, because you’re going to address other issues that are long-standing issues,” Sudhir Shetty, chief economist for the World Bank’s East Asia and Pacific region, told reporters in Jakarta on Wednesday.

“For a region as dependent on exports as [Southeast Asia], you can get a little bit out of exchange rate movements but fundamentally it has to be about being competitive about things like logistics,” Shetty added.

The rupiah has weakened by 4 percent to Rp 12,932 per US dollar since the beginning of the year, Bank Indonesia data shows, as the US economy persistently improves.

However, both the central bank and the government downplay any negative effects of the depreciation and, instead, emphasize the benefits of a weaker rupiah in lifting the country’s export activities.

The Trade Ministry targets $192.5 billion in exports this year, up 4.4 percent from last year. It aims to triple the growth of exports, which make up approximately 33 percent of the nation’s economy, to attain the goal of a 7 percent economic growth within the next five years.

The target was set despite the fact that Indonesia’s exports have been declining in the past two months. The country’s exports fell 12 percent to $25.6 billion in January and February this year, compared to the same period last year, the Central Statistics Agency reported.

Exports of manufactured and processed goods, which make up 68 percent of the country’s total, also declined by 8.6 percent to $17.5 billion during the first two months of the year, compared to last year.

“What one can see in the Indonesian economy is that overall, the manufacturing sector is relatively underdeveloped, relative to other countries, given Indonesia’s location in the world,” the economist said.

“Indonesia should be doing better in manufacturing. That’s the lack of competitiveness that hurts Indonesia the most.”

Although the economist praised President Joko Widodo’s reform goals in order to boost economic growth, he noted that the fruits of these initiatives remain to be seen.

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Source: The Jakarta Globe