1. manage exchange rate system is a exchange rate system that is controlled by the government. in manage exchange rate system, government controls and manages the fluctuation of the currency. Government will not allow the currency to appreciate too high or depreciate too low, because it may be unbeneficial for both importers and exporters. example of country that has manage exchange rate system is Canada.
2. Depreciation of currency should have increased the competitiveness of export in the market, but instead of increasing export, the export decreased.
one of the reason for this decrease despite the depreciating currency is the Europe crisis.
in the article, it was said European countries account for 11 percent of the global demand for natural rubber (something that Indonesia produces and exports). Because European countries are now experiencing crisis, they try to reduce import (to reduce their expenses and keep the balance of payment as favourable as possible).
Second reason to this decline might be because the goods produced by Indonesia are mostly raw materials, and they are price elastic.
It means that the goods produced by Indonesia can be easily replaced by products from other country. The quality of products produced by Indonesia might be not as good as other countries'. Because the quality doesn't match up with the other countries', it loses demand even though the price of the product has decreased.
The condition will be different, however, if Indonesia produces goods that are price inelastic such as versatile electronics and gadgets, such as Japan and America.
3. Stability of the Currency (Rupiah) is one of the important factor of growth in Indonesian economy.
If the rupiah of Indonesia is stable, then
- More foreign investment, because investors are looking for country with stable economy good future prospects
- rupiah will be favoured in the market by the speculators. if the speculators buy a lot of rupiahs then the demand for rupiah will keep rising, and rising demand means appreciation of rupiah. Appreciation of rupiah increases the price of export in market. this can be good for the short run; the price is high so Indonesia will earn more. but in the long run, demand for the exports might go down. decreasing demand for export will decrease the production of Indonesian producers and hence it decreases GDP of Indonesia. Decreasing GDP will reduce the growth of Indonesian economy.
- higher investment means government has more money to spend for the welfare and benefit of society (it can be successfully done if there is no corrupt government individuals in Indonesia). Government can use the money to increase the education in Indonesia (to increase literacy rate, which is a parameter for a growth of economy in a country)and improve the health care (increase the life expectancy, another parameter for growth of economy in a country).
number three continuation and four is coming, and i don't know why i cannot post comment..
Sandra
