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Indonesia towards 2030 and beyond: A Long-Run International Trade Foresight

Verico, Kiki (2017): Indonesia towards 2030 and beyond: A Long-Run International Trade Foresight.

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Abstract

One of the most important variables in the emerging economies like Indonesia is the stability of the exchange rate. Unstable exchange rates make it almost impossible for all business ventures to plan the business. The higher the depreciation of the Rupiah the higher the inflation rate and this will decrease people's purchasing power. In the balance of payments, the stability of the exchange rate and capital account are strongly influenced by the current account balance. A study found that in Indonesia, in the long run (Johansen Procedure) Indonesia current account balance affects the real exchange rate while in the short run (VECM) it affects the nominal exchange rate. The study also found that in the current account balance the one that affecting the exchange rate is the trade balance. Indonesia's trade balance relies on a surplus of trade in goods, especially agricultural products, petroleum and gas. The price of products in the primary sector is very vulnerable because of the volatility of primary products due to that of world’s oil and gas price. Indonesia's current account balance is highly dependent on manufacturing product trade. Another study found that in real-world, manufacturing trade influences more the capital flows than vice versa. Therefore, in order to maintain a positive long-term economic growth and stable exchange rate, Indonesia must increase its trade competitiveness, especially in the manufacturing sector. This paper will explore the challenges and opportunities of international trade in Indonesia towards 2030 and afterwards.

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