Rupiah at lowest since Asian financial crisis, but Indonesia keeps calm and carries on

With consumer prices falling, wages rising and inflation under control, the Bank Indonesia governor rubbishes comparisons with 20 years ago. “Come on!,” he says. “You make it sound like Indonesia is falling apart”

BY DAVID G ROSE

Saturday, 6 OCT 2018

The Asian financial crisis may have occurred two decades ago, but it continues to cast a long shadow over Indonesia. The country’s modern image was defined in the summer of 1998 as a currency crash sparked social and political chaos, culminating in the downfall of President Suharto and the birth of a reformed democracy.

This week, the rupiah fell to its lowest level since that fateful summer; it is now trading at more than 15,000 rupiah to the US dollar, having weakened by 10 per cent overall this year.

Southeast Asia’s largest economy has proved to be as vulnerable as other emerging markets to the uncertainty and turbulence triggered by the United States-China trade war and rising oil prices. Countries as diverse as Turkey, India, Argentina and South Africa have all seen their currencies weaken as investors retreat to more traditional safe havens and stores of value.

But the rupiah’s continued depreciation is a blow to Bank Indonesia (BI), the central bank, which has been determined to avoid another rout, increasing interest rates five times since May in an attempt to stabilise the currency.

But while Indonesian holidaymakers may be disappointed in the exchange rate for the rupiah while travelling abroad, back home there is no sense of an imminent crisis.

Consumer prices are actually falling rather than rising, largely due to a decrease in prices on staple foods such as chicken, eggs, onions and chillies. Wages are also slightly rising and, for the moment, inflation is under control.

As Perry Warjiyo, the governor of Indonesia’s central bank, puts it, “the fundamentals of the economy are sound”. Warjiyo dismissed comparisons to 1998 when asked this week about the currency’s current slump, which made headlines across the region.

“Why do you keep saying it’s ‘the lowest since the Asian crisis’, this kind of thing?” he tells This Week In Asia. “You make it sound like Indonesia is falling apart.”

He adds: “How much has the rupiah fallen this year? 9.8 per cent. But how much has the [Indian] rupee fallen? Twelve per cent. How much is the decline in Turkey, how much in South Africa, how much in Argentina?

“Come on! Compare [the rupiah] with the rupee and other countries’ currencies. Our depreciation sends many jitters, but it is still manageable. And of course our rupiah is undervalued, compared to its fundamentals.”

The BI governor is aiming to restore confidence not just in the aftermath of a terrible earthquake and tsunami in Central Sulawesi, but in advance of the annual World Bank and International Monetary Fund meetings that will take place in Bali next week.

The biggest players in world finance and development economics will be arriving and Indonesia – as well as the economy of the wider region – will be the focus of attention.

South China Morning Post