The rupiah recovery<\/p>\n
The string of good news since early August seems to have
\nignited the beginning of the long-awaited recovery of the rupiah,
\npushing it into a range of between Rp 10,800 and Rp 11,000
\nagainst the American dollar for the past eight weeks. Still more
\nencouraging was the fact that the market seemed to shrug off the
\nseries of isolated riots in several towns over the same period.
\nThe currency remained fairly stable in its newfound range, except
\nbriefly on Sept. 8 and Sept. 9, when it returned to below Rp
\n12,000 in reaction to a short-lived renewal of massive student
\ndemonstrations in Jakarta and Surabaya.<\/p>\n
The latest good news on the economy broke last Friday, when
\nthe International Monetary Fund (IMF) approved the release of a
\nfurther $1 billion from its $11.3 billion bail-out fund for the
\ncountry. Furthermore, there are strong indications that the
\ngovernment's adherence to the IMF program of reform could result
\nin a resumption of a quarterly issue of $3 billion after the next
\ntwo monthly installments are disbursed on Oct. 25 and Nov. 25.
\nThe IMF initially planned to release the loans on a quarterly
\nbasis over a three year period ending in the year 2000 before
\ndoubts emerged over the government's willingness to implement the
\nreform program and widespread social unrest here lead to a change
\nof heart.<\/p>\n
One week earlier, Paris Club creditors agreed to reschedule
\n$4.2 billion of government debt repayments that would otherwise
\nhave fallen due within the next 20 months. This followed an
\nimpressive breakthrough resulting from the finance ministry's
\nefforts to recover the bulk of the Rp 140 trillion issued as
\nemergency liquidity support to ailing commercial banks by Bank
\nIndonesia.<\/p>\n
The big question nonetheless, given the false dawns which have
\nintermittently raised hopes of a recovery in the rupiah since
\nFebruary, is whether or not the latest rally in the currency
\nmarkets is sustainable in nature and capable of driving the
\nrupiah on towards the year-end target of Rp 10,000 against the
\ndollar. Although this modest rate would still be 76 percent lower
\nthan the rupiah's pre-crisis level of Rp 2,400 against the
\ndollar, it would still be considerably better than the depths
\nwhich the currency plumbed in May, when it was briefly worth 85
\npercent less against the dollar than it was before the crisis.<\/p>\n
A stable rupiah is critical for the economy, because it is a
\nprerequisite for a cut in the punitively high interest rates of
\nover 65 percent which have sent our economy into hibernation. The
\nlonger these interest rates are allowed to choke the economy, the
\ngreater the number of bad bank loans there will be. This will
\ncompound the difficulties of our ailing banks, which in turn will
\nfilter through into the corporate sector, leading to more and
\nmore bankruptcies and inflicting yet greater damage to the
\nfundamentals of the economy.<\/p>\n
No one seems to doubt the government's determination to bring
\nabout economic reform, as agreed with the IMF, and to pursue
\neconomic management with common sense as its guiding principle.
\nThat is all well and good, but most of the destabilizing factors
\nthat have the potential to abort the rupiah's recovery, even as
\nit is beginning, lie in the social and political fields. As long
\nas the market remains apprehensive and therefore susceptible to
\nsocial and political instability, the recovery will remain on
\nshaky ground. Market jitters on the rupiah are related mostly to
\nthe high risk of renewed social unrest and massive student
\ndemonstrations.<\/p>\n
Fortunately, though, it is within the government's ability to
\ncontrol these potentially damaging factors. First of all, the
\nrisk of renewed social unrest on a massive scale could be
\nminimized if the government made improvements to the way in which
\nsubsidized staple foods and other essential commodities are
\ndistributed.<\/p>\n
As regards political risks, the immediate test facing the
\ngovernment is how to resolve the controversy it has built up
\naround the plans of the Indonesian Democratic Party (PDI) faction
\nloyal to Megawati Soekarnoputri to hold a congress in October.
\nFailure to solve this potentially explosive problem could lead to
\nan outpouring of frustration and anger on the urban streets of
\nthis country.<\/p>\n
Yet another big test in the offing is how successful the
\ngovernment will be in channeling the general public's aspirations
\nduring the extraordinary session of the People's Consultative
\nAssembly (MPR) which is to convene in the second week of
\nNovember. Of equal importance is how it goes about trying to
\nconvince the general public that it is serious in its efforts to
\nbring the corrupt, the collusive and the nepotistic elements of
\nthe previous government to justice, and more specifically, how it
\ngoes about dealing with former president Soeharto's perceived
\nabuse of power to further the interests of his family and close
\ncronies.<\/p>\n
The recovery in the rupiah will be more durable if the
\ngovernment succeeds in fulfilling its main agenda, namely to
\nenact new political laws capable of ensuring overall political
\nreform and guaranteeing a fair, open and honest general election
\nin the middle of next year.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/the-rupiah-recovery-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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