The current strength of the U.S. dollar against the Indonesian rupiah is proving advantageous for Timor-Leste’s economy, according to an official. “Imagine if the dollar depreciated against the rupiah, prices would start to rise when we import goods from Indonesia,” the official explained to journalists.
The majority of Timor-Leste’s foreign trade is conducted with Indonesia, and as long as the dollar remains robust compared to the Indonesian currency, the nation stands to benefit from this economic advantage.
“We hope the dollar stays strong to facilitate our imports. However, a strong dollar also makes it more expensive for other countries to buy our products, which hurts exports,” the official emphasized.
Despite these complexities, the governor noted that the Central Bank of Timor-Leste (BCTL) continues to monitor the dollar’s depreciation against the British pound and the euro, along with any resultant “effects and complications.”
The BCTL governor made these remarks after meeting with the Timorese President, José Ramos-Horta, at the Presidential Palace in Dili.
When asked about his meeting with the head of state, Hélder Lopes stated that discussions included whether Timor-Leste should adopt its own currency or continue using the dollar.
“Adopting a new currency requires consensus among leaders to ensure that once implemented, the new currency functions effectively,” he stated.
Timor-Leste adopted the U.S. dollar in 2002 following the restoration of its independence.
A study released last December by the International Monetary Fund highlighted that while the dollar has aided Timor-Leste in achieving stable and low inflation, it may also be contributing to the “weakening of private sector competitiveness.”
“As trade increasingly shifts towards ASEAN [Association of Southeast Asian Nations] and oil production ends, the cyclical factors influencing Timor-Leste’s economy are becoming less tied to the United States, increasing the cost of using the dollar,” the study noted.
To optimize economic performance using the dollar, the study suggests that Timor-Leste needs to reduce budgetary imbalances and implement reforms to “address structural bottlenecks affecting the private sector.”
“While the choice of currency regime lies with the authorities,” the IMF believes these reforms are crucial both for strengthening the economy with the dollar and as prerequisites for introducing a national currency.
