It is usually said that devaluation benefits domestic producers. But there is a flip side. If exports have a high import content – raw materials and more – devaluation raises producers' costs. An example comes from Indonesia.
A baleful wind is blowing on the economy of the Indonesian archipelago, fully investing the productive sector. In an attempt to minimize the negative impact of the depreciation of the national currency, some companies have chosen to delay the importation of raw materials, while others have opted for an increase in product prices.
Rino Bernardo, an analyst at the Mandiri Bank, announces that the drop in production due to the weakening of the rupee will manifest itself at different times for the different industrial sectors. The steel and iron industry will be the first to be affected within a month, while the textile industry will face the problem within three months. Moreover, PT Krakatau Steel, a state-controlled steel company, is already feeling the grip of the crisis and has affirmed that it is time to establish an austerity regime.
"We are trying to be more efficient" says Irvan Kamal Hakim, CEO of the company, "and we are examining which expenditure items, including capital expenditures, can be deferred until the domestic and international economic situation improves". However, not all forecasts are so gloomy: the rating agency Fitch has declared that the country's large real estate companies should be able to contain losses on the currency markets over the next 12 months, thanks to hedging measures and high profit margins, which would absorb the negative impact of the short term.
