Indonesian financial crisis

Indonesian financial crisis

The overload of opinions, comment and criticisms from sources
both inside and outside Indonesia concerning the uncontrolled
nosedive of the rupiah, can be summarized simply and considered
logically rather than emotionally. Whether or not the
"fundamentals" of the Indonesian economy remain sound or not,
does not impact on the situation or any solution.

As has been stated many times, this is a crisis of
"confidence" and such crisis occur regularly all over the world.
We Brits and the pound sterling have often been victims, the most
noteworthy episode being in 1992 when the infamous George Soros
made 1.5 billion pounds sterling in one day by speculating on the
pound. He was able to do this because our government of the time
had led us straight into the crisis, which everyone in UK knew
was coming, except the government. It has been said that the
massive funds available to groups as large as Soros and his
backers' co-investors, enable them to move markets, which of
course is true, but let's not forget, had our government and the
Bank of England used our reserves to support the pound, Soros and
others would have failed. Similarly, the Prime Minister of
Malaysia is right to accuse the same speculators. However,
responses in ASEAN countries, like Malaysia, such as unclear
policies, unimplemented policies and hoping the nightmare will go
away, etc., ensure the speculators make more money not less, and
create the "crisis of confidence."

Witnessing the attack on the Thai baht, Indonesia could have
assumed that this was unlikely to happen to the rupiah, except
that for the last five years, conglomerates have been insidiously
and continuously borrowing massive amounts of dollars. The
Indonesian government can hardly be criticized for this, as, for
most of that period, such borrowings were illegal. We have seen
the consequence since August -- a continuing mad scramble to dump
the rupiah to buy dollars to service their loans, creating an
enormous demand and battering the rupiah into submission.

Inefficiency, corruption and collusion, are for others to
comment on, but, as a layman, I see such factors as having little
impact on what has happened, as the strength of the country, its
historic performance, and its sheer potential dwarf the likes of
Malaysia, Thailand and the Philippines.

Over the years we Brits have had sets of conditions imposed by
the IMF, and have rescued ourselves -- this will only happen here
if the country follows the advice of Wimar Witoelar, who, in a
well crafted article in The Jakarta Post (Oct. 11, 1997),
summarizes by saying "Don't repeat old habits after the IMF
cure."

Whatever the outcome, Indonesia, like every country in the
world linking to the dollar, will always, repeat always, be at
the mercy of one single individual -- the U.S. Federal Reserve
Chairman -- whenever he speaks, world markets move one way or
another, mostly down, and therefore "crisis of confidence" are a
permanent danger.

For those here still with money to invest, whether in this
country (surely a great opportunity now to buy shares here?) or
worldwide, the wisdom lies in remembering that financial markets
move in cycles, dictated primarily by interest rates. The USA and
European low interest rates currently look set to remain or go
even lower still, and, with bank deposits providing meager
returns, investors there prefer stocks and bonds, which causes
the prices to rise. In Indonesia now, we have the reverse
situation -- bank deposit rates remain astronomically high,
stocks and bonds conversely ridiculously low -- surely Indonesia
now offers some of the best opportunities in the world -- place
your money in short term, very high interest deposits, and, as
the interest rates start to drop in the near future, buy shares
in the "blue chips" here, as difficult times like this are,
almost without exception, followed by strong rallies.

BILL GUERIN

Jakarta