Indonesia moves to contain panic

A customer counts out Indonesian rupiah banknotes at a shop in Jakarta on Aug 25, 2015.
A customer counts out Indonesian rupiah banknotes at a shop in Jakarta on Aug 25, 2015. PHOTO: AFP

Both the ringgit and rupiah have come under pressure in currency markets, continuing to fall to record lows. Our correspondents in Kuala Lumpur and Jakarta take stock of the impact of the currencies' slide.

For the third time in two days, property consultant Anjelin Dian joined a queue in downtown Jakarta yesterday to change her US dollars into rupiah, which has fallen about 12 per cent so far this year.

"When the rupiah plunged even further on Monday, I thought this was the best time to change some US dollars and keep the cash for expenses over the next few months," she told The Straits Times, adding that she had changed nearly US$10,000 (S$14,200).

Money changers have reported longer-than-usual queues since the Indonesian currency fell to about 14,000 against the US dollar on Monday. It fell to as low as 14,085 yesterday, the weakest since the Asian financial crisis in 1998.

 

Similar queues could be spotted at banks, while travel agencies here say they are seeing a drop in bookings for year-end holidays.

Asia's second-worst-performing currency this year after the ringgit took a further beating in Black Monday's global sell-off.

As Finance Ministry and central bank officials announced a slew of measures to contain the panic, President Joko Widodo reached out using social media.

"Come, let's work together to overcome the weakening rupiah by buying local products," he tweeted on his official Twitter account.

The weakening rupiah comes amid a slowdown in the Indonesian economy, which grew at under 5 per cent in the first two quarters of the year, the slowest pace in six years.

The slowdown is mainly due to the sluggish economy of China - Indonesia's biggest trading partner - which has led to lower demand for commodities such as coal.

In Indonesia, imported goods have become expensive, with some goods costing up to 50 per cent more. Consumer spending has shrunk in line with the bleak outlook, leading to growing dissatisfaction with the government.

In an attempt to shore up support and exert control over the economy, Mr Joko reshuffled his Cabinet two weeks ago, replacing his economic and trade ministers.

On Monday, he gathered governors, mayors and other local leaders and instructed them to spend their budgets before the end of the year to help spur the economy.

To soften the latest blow to the rupiah, the Finance Ministry said it would buy back government bonds to calm the market.

Central bank chief Agus Martowardojo urged exporters to sell off their foreign currencies to create a balance in the country's foreign exchange condition.

Some sectors, such as textiles, are worried as they depend on imports of raw material.

Mr Ade Sudrajat, chairman of the Indonesian Textiles Association, said the weak rupiah has made the sector less competitive as 80 per cent of its raw materials are imported. "It not only affects the price of our goods but also raises the risk of job cuts," he said, citing how 36,000 workers have lost their jobs since the start of the year.

Dr Martin Panggabean, chief economist at IGIco Advisory, said Indonesia's stronger banking sector ensures that there will not be a severe situation as in 1998.

"This is panic-driven, so the central bank has the right approach, which is, don't intervene too much," he told The Straits Times.

"What the government needs to do now is to convince the market that its banking sector is sound, limit the liquidity rush and manage the volatility instead of strengthening the currency," he said.

Referring to countries that have spent millions trying to prop up their currencies, he said: "In this kind of situation, however much you pour into the market, it is going to go into a black hole."

A version of this article appeared in the print edition of The Straits Times on August 26, 2015, with the headline 'Indonesia moves to contain panic'. Print Edition | Subscribe