Not long ago, Forbes magazine announced the richest countries in the world, measured by per capita income adjusted for “purchasing power parity”. In the list, topnotch Qatar, Singapore’s third, fifth and Brunei Darussalam.
What is purchasing power parity (PPP – Purchasing Power Parity) is used as a measure by Forbes? Understand how easy it is to compare the indicator value of domestic currency in the currency of reference if it is spent on a group of goods or services.
A simple example for instance, to stay at a five star hotel in the U.S., it costs U.S. $ 1,000 or about USD 9 million last night. In Indonesia, the price of Rp 3 million per room means that Americans could be three rooms in our five-star hotel, while if we are to the United States can only be one room.
This is measured by Forbes in ranking.
This indicator is used to explain the purchasing power of our currency. In theory, for example, when the rupiah weakened against the U.S. dollar, so our goods are shipped into the country could be bought cheaply. Means there is potential for a large increase in trade. But why is not there?
In the case of the global economic crisis, usually the first economic indicators are volatile exchange rate, as the experience of 1997/1998. But ironically, at the same time, exports also fell, as incompatible with the existing economic logic.
One thing to keep in mind is that nominal exchange rate is the domestic currency (rupiah) to foreign currencies (e.g. dollars). While the exchange rate or rather the real exchange rate is derived from purchasing power parity (PPP) whose value is affected by the price comparison overseas and domestic prices.
The higher price is outside, then the weaker real exchange rate of our currency.
Exports with the story, it’s due to a component of imported raw materials in product manufacturing Indonesia is still very high. Our production so costly to bring in imported raw materials, so their cost of production can be increased. As a result, the price of the finished product is also more expensive.
Because it would not be surprised if the condition of the rupiah weakened against the dollar, exports were not able to take advantage of export markets to the fullest. Especially in the current crisis conditions, demand from foreign countries have also declined.
Forbes and export of this story, there are lessons to be learned exactly. Especially for us as beginners who want to plunge into an export-oriented businesses. Use as much local raw materials are already available in the country, so that exchange rate movements amid the turmoil of crisis, for example, does not much affect the cost of production.
Even more than that, we can actually reap more profit. Therefore, production costs – in dollars – do not go up because the goods do not need to import, while selling in dollars whose value is greater.
This mode can also occur in the scope of the life of a living and spend it. If you have time to visit Johor Bahru, Malaysia adjacent to Singapore, we can watch every morning, residents of the city’s surging across the border between the two countries in order to place of work – including in factories or ports – in Singapore. In the afternoon, they are flocking back home in Malaysia.
That means, standard income in Singapore dollars, then spend it with the standard of Malaysian ringgit. Meanwhile, the ratio of the Singapore dollar to ringgit – today – is 2.4.The dollar is much larger or have better purchasing power than the ringgit.
March 13th, 2012 
