China’s recent decision to allow its currency to float upward against the US dollar should be good news for Indonesia. Of course, the technical aspects of the exchange rate flexibility remain to be seen but if a measurable appreciation occurs, Indonesia stands to benefit. The cost of Chinese goods –already affected by rising labor costs—should theoretically rise, making Indonesian products more competitive. Companies that already had a diversified approach to sourcing in Asia now see the wisdom of their strategy and those that have not should be giving Indonesia a very close look, especially its export processing zones.
A rising yuan (even if done gradually) will also boost Chinese purchasing power, making it easier for Indonesia to export commodities and other goods to China.
Indonesia can capitalize on this development by reducing its many hidden costs and barriers to doing business, liberalizing its investment and regulatory climate, professionalizing its commercial legal system and bureaucracy, and engaging in focused promotion efforts.
Friday, June 25, 2010
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