Save the rupiah

I am an expatriate living in Indonesia for the last three years. Indonesia is a fantastic country to live in with its diversity in culture, people and the scenic landscape. It is a shame to observe over the last few months, especially since December last year, that the people of this nation are allowing the rupiah to continue falling to such an unrealistic level.

For more than 30 years under the rule of President Soeharto, the rupiah had never undergone devaluation, but since July last year the value of the rupiah has fallen so drastically that it no longer reflects its true value. The government and the people should rally all their support behind the President and map out a concrete action plan to solve this monetary crisis as quickly as possible.

The time is now ripe for the government to explain what the causes of the crisis were. And having identified these causes, tell the people what immediate steps will be taken to overcome this crisis. The rupiah must not be allowed to continue to fall, for if it falls further U.S. dollar debt servicing will become impossible and many business ventures will go bankrupt with the resultant effect of increased unemployment that will cause great hardship to the people, especially the poorer ones. A basic economic crisis could turn into a social and political crisis.

The current situation has shown that the people have panicked and grown selfish -- thinking of their own interest first, ahead of the nation. They become blinded to the fact that if the nation falls, they will also fall with it. They rushed to dump their rupiah and converted them to U.S. dollars. Corporate businesses also joined the rush to buy U.S. dollars as they have to repay their foreign debts and this also contributes to the rupiah's falling value.

The only possible solution to the crisis, as an immediate measure is:

* To increase interest rates on short-term rupiah deposits to such an attractive level that it can be the "carrot" to influence the people to convert their U.S. dollars into rupiah and place them in a special short-term rupiah deposit scheme introduced by the government to save the rupiah. The scheme is a simple time deposit in rupiah of 100 million and above for a minimum three month period and at an attractive interest rate of 100 percent per annum. The rate may seem "crazy" but the rupiah has fallen to such a "crazy" rate against the U.S. dollar (the current rate of Rp 10,000 to US$1 is four times the rate of Rp 2,500 to US$1 in July 1997). Only such a "crazy" rate will attract people to convert their U.S. dollar into rupiah again. The government has "to bite the bullet" and take this immediate step to save the rupiah.

* Close and careful monitoring of the deposit scheme during this three to six month period would allow reevaluation. If the rate of US$1 to Rp 4,000 can be achieved, the interest rate can then be reduced, but gradually, for any sharp reduction could send the "wrong signal" again. Should this desired rate of Rp 4,000 have not yet been achieved, consideration and reevaluation can be given to extending it for a further three to six month period.

MOSES K. H. PHUA

Jakarta