Job Discussion Forums

[Listerine]

[plumpy nut]

I wonder if Indonesia is going to Zimbabweanize with 5 billion Rupiah to the dollar?

[Listerine]

[bradleycooper]

Well, they can't say we haven't been warning people. The signs have been there for many months now that Indonesia's economy was in serious trouble. In fact, the rupiah has been trending steadily lower since 2011. But with Megawati and her puppet president Jokowi in office, things have taken a rapid turn for the worse.

The thing is, they knew that they needed foreign investment to improve the worsening prospects for the economy, but the ''anti-Western oppressor'' rhetoric is such a reflex action with the PDI-P that they couldn't help themselves. They executed the drug mules, let the whole JIS case drag on for 12 months and then started banning imports of hundreds of products from abroad. At the same time they banned miners from exporting unrefined ores, right at the time when revenues from commodities were already collapsing.

The result is a flood of investors trying to get all their money out of Indonesia before it's too late. The nasty fall of the rupiah today indicates that things are going to get quite ugly. If the US raises interest rates in September, expect even more downward pressure on this beleaguered currency.

[plumpy nut]

Is it possible to short the Rupiah?

[bradleycooper]

The following information comes from the well-respected British magazine, The Economist. It echoes a lot of the points made in this thread and worries that the rupiah could plunge further still once the Americans raise interest rates, which may happen in September.

Aug 8th 2015 | SINGAPORE |

NOT since Bill Clinton was president and Barack Obama was a law professor with a sideline in local politics have the beaches of Bali and Langkawi looked so inviting to Americans. Four years ago, a dollar fetched just over 8,500 Indonesian rupiah, and just under three Malaysian ringgit. Today a dollar is worth nearly 14,000 rupiah and almost four ringgit. Both currencies hit 17-year lows this summer, and kept falling (see chart).

But in Asia the rupiah and ringgit lead the race downwards, having fallen by 8.4% and 9.8% against the dollar this year—much further than the Thai baht (6.4%) and the Philippine peso (2.2%). Their problems are exacerbated not just by the Indonesian and Malaysian economies’ heavy dependence on commodities, but also by political ructions in both countries.

Start with commodities. The halving of oil prices over the past year has harmed Malaysia, which depends on oil for about 30% of its revenue. Indonesia is a net importer of oil, but other commodities still comprise around 60% of its exports—a worry, given that The Economist’s commodity index, which excludes oil, has declined by almost 20% over the past year. Thailand and the Philippines, in contrast, both have sizeable advanced manufacturing sectors: their top exports are computers and electronic components.

China’s slower growth and waning appetite for commodities have also been a drag on Malaysia and Indonesia. China is the top destination for exports from the Philippines too, but remittances from the millions of Filipinos working abroad have helped prop up domestic demand, thus cushioning the blow of falling income from exports.

Indonesia’s current-account deficit and the big share of its government debt in foreign hands will make it particularly susceptible to capital outflows in the event of a rate rise in America. (Foreigners also own a lot of Malaysia’s debt.) Even more worrying, much Indonesian borrowing, both corporate and sovereign, is dollar-denominated, meaning that as the rupiah falls the cost of debt service rises.

In response to these woes, Indonesia has fallen back on protectionism, as usual: in July it imposed import tariffs on a range of consumer goods, including coffee, cars and condoms. Despite much talk from the president, Joko Widodo, about upgrading his country’s infrastructure, little has been done. He came into office nearly a year ago with great promise, but some investors have started to wonder whether he is up to the job of pushing through the reforms his country desperately needs.

As for Malaysia, its foreign reserves look set to drop below $100 billion, depriving it of a much-needed buffer, and suggesting the government may have tried to prop up the ringgit. The woes of its prime minister, Najib Razak, who for months has been trying to dispel allegations of corruption, may intensify investors’ jitters.

The question now, for both countries, is how long the pain will last. Many predict that commodity prices will rebound; fewer predict when. In the meantime, depreciation should make their exports more competitive, but low commodity prices seem to be offsetting that gain. Indonesia is growing at the slowest pace since 2009. The falling currencies in both places are also stoking inflation. Whenever the Fed gets around to raising rates, these ailments will presumably worsen.

[plumpy nut]

The rupiah just broke 14000 yesterday.

[bradleycooper]

[Listerine]

[plumpy nut]

It's already well on it's way. It reached above 14100 today. Tourists should be flocking in, however it's so dysfunctional any sort of relief from tourism won't happen because the hotel prices aren't going to go down, neither are restaurant prices, and the immigration extortion will probably get worse. Salud et Fraternite Citoyen.

[Listerine]

[p1randal]

^Easy there "Chicken Little" the money has gotten worse and it kinda sucks but let's not predict the apocalypse just yet..Fear mongering doesn't do anyone any good...

[markustm]

Actually Asia is in trouble at the moment, not only Indonesia, and this is a problem which affects South East Asia, and China, which could spread into Europe, and the US.

Any country which exports commodities, oil, and other natural resources has seem their value drop this year, which means not only has Indonesia's currency dropped, but the majority of currencies in Asia, and the Middle East.

If anyone is looking at 1998, and saying its going to repeat itself, it was a political crisis, with mobs demonstrating, riots and an overthrow of a pro- western authoritarian government, which compounded the economic crisis.

This time its only really an economic crisis, which most other Asian countries are also facing, so its naive to think that only Indonesia has devalued its currency.

I was in Indonesia in 1998, I worked near an area the locals started calling 'riot center,'and everyday I passed mobs fighting, and demo-stating, for "reformasi."

Yet, I had more than enough work, lived in a reasonable apartment and spent weekends away in West Java, on a rupiah salary. Nightclubs were full, and one thing I always remember were the queues of shoppers outside Malls, protected by tanks, complaining the shops were closed during the riots.

In fact, it was a crazy year, but one were many English teachers earned very little in dollar terms, but lived extremely well, and experienced a historic time in Indonesia's history.

I agree a crisis is looming, but for those who seem to gloat at Indonesia's misfortune from afar, and enjoy the current crisis the country is going through, perhaps you should simply spare a thought about the local people who are affected, instead of gloating over other peoples misfortune.

Perhaps you could enlighten us, with some positive ideas on how to lift Indonesia out of crisis, or enlighten us with some economic foresight on how to improve the value of the rupiah?

[Double_Dragon]

[bradleycooper]

The answer to Indonesia's problems is very clear...in theory. End corruption. Clean up the judiciary. Weed out the greedy justices like Justice Sarpin who said that Anti-Corruption Commission had no right to investigate Budi Gunawan, an alleged dirty cop caught with almost $6 million in his kid's bank account. Release the anti-corruption officers who are thrown into jail every time they name someone powerful who was caught with millions of stolen money.

Investors have said time and again that they want a decent legal system where contracts are enforced. They don't like justice for sale because local companies can rip them off and then bribe a crooked judge in South Jakarta who will find in their favour. These things are reported day in and day out in the newspapers and editorial after editorial is run and then nothing changes. Indonesia is in a rut but there are millions of people in the system who benefit from the corruption and they fight reform every step of the way.

The problem really is that Indonesia never had a day of reckoning after 1998. The Suhartos were never charged and they got to keep their stolen millions. Yes, Indonesia has made some progress in terms of press freedom and elections but most people are frustrated by elected governments which rule for the Jakarta elite and never make substantial inroads against poverty and corruption. The judges and cops are more corrupt than ever, and vested interests block reform at every turn.

Billions and billions of dollars are now pouring out the country and the odds are that there's going to be some dire consequences. If Indonesia wants to minimize them, it needs to make some tough reforms and change its well-earned reputation for graft, collusion and corruption. Nothing at all indicates that that is on the cards. In fact, under Jokowi things have gone rapidly backwards. Until Indonesia deals with its corrupt political culture, it will be prone to major crises every so often. It looks like the next 1998 is on the horizon.