The crisis deepens<\/p>\n
The rupiah predictably plunged past 11,000 to the U.S. dollar
\non Monday morning before closing slightly up at 10,700. It
\ndragged down the composite price index of the Jakarta Stock
\nExchange (JSX) to 396.611, below the psychologically important
\n400 point level, and a 4.2 percent fall from Friday's close.<\/p>\n
The absence of any new positive factors to offset the sequence
\nof bad news that has been accumulating since the February censure
\nof President Abdurrahman Wahid by the House of Representatives
\nhas further incited panic selling of even blue-chip stocks and
\nprompted faster dumping of the local unit.<\/p>\n
The further steep depreciation of the rupiah is certainly
\naffecting the outlook of most industrial companies listed on the
\nJSX due to their high dependence on imported materials and
\ncomponents and heavy foreign debt burdens. The plunging rupiah
\nmay also dampen consumer confidence and consequently curb private
\nconsumption, thus far one of the main locomotives of the nascent
\neconomic recovery.<\/p>\n
Amid the festering political uncertainty that seems to have
\nturned into a game of brinkmanship between the legislative
\nAssembly and the President, plus sporadic bouts of civil unrest
\nand stalled negotiations with the International Monetary Fund
\n(IMF), not a single economic measure appears to matter anymore.
\nBank Indonesia's Senior Deputy Governor Anwar Nasution, despite
\nappearing desperate and helpless, was right to observe that
\nintervening in the currency market by selling dollars would be
\nlike pouring water into the desert.<\/p>\n
With a total foreign debt of US$140 billion, of which $26.5
\nbillion matures this year, Bank Indonesia, which holds only about
\n$29.1 billion in gross foreign reserves, is certainly impotent to
\ninfluence the demand-supply equation in the market. This is
\nmainly because the rupiah's fall is caused by demand not for real
\ntransactions (imports and foreign debt servicing) but primarily
\nfor speculative or hedging purposes.<\/p>\n
The further jacking-up of interest rates could slightly curb,
\nbut not stop, the rush for the dollar, and the impact of such a
\ntighter grip on credit might severely devastate the weak banking
\nindustry and could choke economic activities.<\/p>\n
Forcing exporters to repatriate their export earnings in order
\nto increase the dollar supply within the domestic banking system,
\nas some analysts and bankers have suggested, would most likely be
\nfutile from the outset in view of the complex administrative
\nsystems required. Companies might simply underinvoice their
\nexport prices and overinvoice their import costs in an attempt to
\ncircumvent such regulations.<\/p>\n
Imposing direct foreign exchange controls, as Malaysia did in
\n1998, would not only be suicidal at present. Such a drastic
\nmeasure might totally break Indonesia's already prickly relations
\nwith the IMF.<\/p>\n
Government economists might argue vehemently that the rupiah
\nexchange rate is now grossly undervalued, compared with the
\neconomic fundamentals. But economic fundamentals certainly do not
\ncount for much when the system of law enforcement and public
\norder is breaking down as at present in many parts of the
\ncountry. In the perception of the international market the
\neconomy of the country is now so degraded as to have become
\nvirtually a \"basket case\".<\/p>\n
The government's decision on Monday to postpone from April to
\nOctober the average 20 percent rise in fuel prices might be
\neffective in dousing a possible new conflagration leading to
\nmassive protest demonstrations. However, its move to raise fuel
\nprices in April for large industrial consumers by between 50
\npercent and 100 percent might threaten not only the budding
\neconomic recovery. It could create a new loophole for corruption
\nand smuggling.<\/p>\n
One can hardly imagine how the state oil and natural gas
\ncompany, the corruption-infested Pertamina, would be able to
\nadminister such a two-tier price system in a vast archipelagic
\ncountry like Indonesia. But that seems to be the \"least worst\" of
\nthe alternatives the embattled Abdurrahman administration could
\ntake now, even though it is at the risk of creating new economic
\ndistortions and further inflating the state budget deficit.<\/p>\n
It is therefore almost impossible to predict how much further
\nthe JSX index could crumble or the rupiah might fall in the
\ncoming days. We can only hope that Abdurrahman and the House
\nleaders will immediately stop their bickering, put aside their
\npower ambitions and start acting and working together to save the
\nnation from plunging into an even deeper crisis.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/the-crisis-deepens-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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