Indonesian Pharmaceutical Industry to be Affected by Rupiah Depreciation

CORPORATE STRATEGIC - JAKARTA. The weakening trend of the Indonesian rupiah against the US dollar could potentially have a significant impact on the sustainability of the pharmaceutical business in Indonesia.

According to observations on the Google Finance page, the rupiah broke through the level of Rp 16,057 per US dollar on Monday (15/4) afternoon.

Elfiano Rizaldi, the Executive Director of the Pharmaceutical Company Association (GP), believes that the impact of the weakening rupiah on the pharmaceutical industry greatly depends on how long this currency correction trend lasts.

If the rupiah continues to weaken after the Eid holiday or until next month, the national pharmaceutical industry is clearly threatened.

Understandably, almost 90% of raw materials for pharmaceutical products such as drugs still have to be imported from abroad.

So far, there are only a dozen or so raw materials for pharmaceuticals that can be produced domestically. Even then, it is not entirely or 100% local content considering the production capacity of the national pharmaceutical industry is still relatively small.

“As a result, pharmaceutical raw materials in the domestic market are not necessarily cheaper than imports, even if the rupiah exchange rate is weakening,” Elfiano revealed on Monday (15/4).

In general, pharmaceutical manufacturers can implement hedging strategies or adjust the price of finished products in the market when the rupiah exchange rate weakens. However, the implementation of this strategy depends on how long the rupiah weakens.

The GP of Pharmaceuticals also mentioned that, in principle, pharmaceutical industry players want a stable and non-volatile rupiah exchange rate.

That way, pharmaceutical manufacturers can more easily make business plans, including calculating the cost of importing raw materials and projecting the revenue from exporting pharmaceutical products.

“If the exchange rate fluctuates too quickly, it's also not good for business continuity, because no matter what, there are pros and cons when the rupiah is in its current position,” he concluded.