Save the rupiah

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