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Indonesia’s President Joko “Jokowi” Widodo on Tuesday (31/07) urged his ministers to make “serious” efforts to strengthen foreign exchange reserves by widening biodiesel use to combat pressures caused by a global trade war.
Indonesia requires foreign inflows to finance its current account deficit and the central bank has spent about $12 billion of its forex reserves in recent months to defend the rupiah, which has lost about 6 percent this year.
“The country needs dollars now,” Jokowi told a cabinet meeting. “I don’t want to keep doing meetings without good implementations.”
The cabinet has met at least six times since the start of July to tackle concerns over trade and the rupiah currency, and Jokowi called for swifter action to prop up the currency.
He sought immediate implementation of a government’s plan to widen the mandatory use of B20 biodiesel to all diesel vehicles, including locomotive engines and heavy equipment.
Expansion of the B20 programme could be launched as soon as Thursday, Industry Minister Airlangga Hartarto said this week. He estimated the measure could save Indonesia $5 billion in diesel imports each year.
Replacing imports could benefit Indonesia, one analyst said.
“In the short term, this would be a faster solution, compared to trying to boost exports,” said Josua Pardede, an economist with Bank Permata in Jakarta.
“Replacing imports would be one alternative to maintain the current account deficit at a healthy level,” he added. “The oil and gas deficit has been continuously expanding in the last year due to the rising oil price.”
Biodiesel can cut fuel costs and reduce emissions, but some varieties need special handling and equipment as the fuel has a solvent effect, corroding engine seals and gasket materials, and it can solidify in the cold.
Indonesia’s auto industries group, Gaikindo, has said stepping up biodiesel blends can increase fuel consumption and could cause engines to overheat.
