Indonesia: Rupiah May Have Rallied, But Jakarta's Policy Decisions Still Bear Scrutiny | Asia Society Skip to main content

Unsupported Browser Detected.
It seems the web browser you're using doesn't support some of the features of this site. For the best experience, we recommend using a modern browser that supports the features of this website. We recommend Google Chrome, Mozilla Firefox, or Microsoft Edge

  • Policy
    • Asia Society Policy Institute
      • Center for China Analysis
      • Topics
      • Countries & Regions
      • Publications
      • Initiatives
      • Watch & Listen
      • Events
      • About
      • Support Us
    • Center on U.S.-China Relations
      • Home
      • About
      • Projects
      • Events
      • Reports
      • COAL + ICE
      • ChinaFile
  • Arts
    • Asia Society Museum
      • Visit
      • Exhibitions
      • Programs
      • Collection
      • Asia Society Triennial
      • The Asia Arts and Museum Network
      • Learn
      • Support
    • Asia Arts Game Changer Awards
      • About
      • Honorees
      • Ceremonies
      • Photos
      • Support
    • Creative Voices of Muslim Asia
      • Resources
      • Exhibitions
      • Videos
    • Film
    • Literature
    • Performing Arts
  • Education
    • Chinese Language Learning
    • Global Competency Resources
    • About
  • Initiatives
    • Arts
      • Arts & Museum Summit
      • Asia Arts Game Changer Awards
      • Asia Society Museum: The Asia Arts & Museum Network
      • Creative Voices of Muslim Asia
      • U.S.-China Museum Summit
      • U.S.-Asia Entertainment Summit
    • Education
      • Chinese Language Learning
      • About
    • Leadership
      • Asia Game Changer Awards
      • Asia 21 Young Leaders Initiative
      • Diversity Leadership Initiatives
      • U.S.-China Dialogue
    • Policy
      • Asia Society Policy Institute
      • Center on U.S.-China Relations
    • Sustainability
      • Asia Society Policy Institute
      • Coal + Ice
  • Countries & Regions
    • Column One
      • Afghanistan
      • American Samoa
      • Armenia
      • Australia
      • Azerbaijan
      • Bahrain
      • Bangladesh
      • Bhutan
      • Brunei
      • Cambodia
      • Central Asia
      • China
      • Cook Islands

      • Cyprus
      • East Asia
      • East Timor
      • Fiji
      • French Polynesia
      • Georgia
      • Guam
    • Column Two
      • Hong Kong
      • India
      • Indonesia
      • Iran
      • Iraq
      • Israel
      • Japan
      • Jordan
      • Kazakhstan
      • Kiribati
      • Kuwait
      • Kyrgyzstan
      • Laos
      • Lebanon
      • Macau
      • Malaysia
      • Maldives
      • Marshall Islands
      • Micronesia
      • Mongolia
    • Column Three
      • Myanmar
      • Nauru
      • Nepal
      • New Caledonia
      • New Zealand
      • Niue
      • North Korea
      • Northern Marianas
      • Oceania
      • Oman
      • Pakistan
      • Palau
      • Palestine
      • Papua New Guinea
      • Philippines
      • Qatar
      • Samoa
      • Saudi Arabia
      • Singapore
      • Solomon Islands
    • Column Four
      • South Asia
      • Southeast Asia
      • South Korea
      • Sri Lanka
      • Syria
      • Taiwan
      • Tajikistan
      • Thailand
      • Tibet
      • Tokelau
      • Tonga
      • Turkey
      • Turkmenistan
      • Tuvalu
      • United Arab Emirates
      • Uzbekistan
      • Vanuatu
      • Vietnam
      • Wallis and Futuna
      • West Asia
      • Yemen
  • Current Affairs
    • Topics
      • Business
      • Climate Change
      • Governance
    • Programming
      • Beyond the Headlines
      • Business of Asia
    • Center on U.S.-China Relations
      • Home
      • About
      • Projects
      • Reports
      • Past Events
      • ChinaFile
  • Look & Listen
    • Asia Society Magazine
    • ChinaFile
    • Podcasts
    • Video Gallery
  • Events
    • Upcoming Events
    • Past Events
  • Visit
    • Visit Us
      • Hong Kong
      • New York
      • Texas
    • Global Network
      • Australia
      • France
      • India
      • Japan
      • Korea
      • Northern California
      • Philippines
      • Southern California
      • Switzerland
      • Washington, D.C.
  • About
    • About Asia Society
    • Inclusion & Diversity
    • Background & History
    • Board of Trustees
    • Senior Leadership
    • Global Staff
    • Global Council
    • Careers
    • Interns and Volunteers
    • Financial Statements
    • For the Media
      • Press Releases
  • Support
    • The Campaign for Asia Society
    • Corporate Engagement
      • Business Council
      • Technology and Innovation Council
      • Global Talent and Diversity Council
      • Rising Executives Network
      • Enhancements to Membership
      • Corporate Membership
      • Global Corporate Leaders
    • Membership
    • Donate
    • Donor Privacy Statement
ASIABLOG
Subscribe
Search
  • Policy
    • Asia Society Policy Institute
      • Center for China Analysis
      • Topics
      • Countries & Regions
      • Publications
      • Initiatives
      • Watch & Listen
      • Events
      • About
      • Support Us
    • Center on U.S.-China Relations
      • Home
      • About
      • Projects
      • Events
      • Reports
      • COAL + ICE
      • ChinaFile
  • Arts
    • Asia Society Museum
      • Visit
      • Exhibitions
      • Programs
      • Collection
      • Asia Society Triennial
      • The Asia Arts and Museum Network
      • Learn
      • Support
    • Asia Arts Game Changer Awards
      • About
      • Honorees
      • Ceremonies
      • Photos
      • Support
    • Creative Voices of Muslim Asia
      • Resources
      • Exhibitions
      • Videos
    • Film
    • Literature
    • Performing Arts
  • Education
    • Chinese Language Learning
    • Global Competency Resources
    • About
  • Initiatives
    • Arts
      • Arts & Museum Summit
      • Asia Arts Game Changer Awards
      • Asia Society Museum: The Asia Arts & Museum Network
      • Creative Voices of Muslim Asia
      • U.S.-China Museum Summit
      • U.S.-Asia Entertainment Summit
    • Education
      • Chinese Language Learning
      • About
    • Leadership
      • Asia Game Changer Awards
      • Asia 21 Young Leaders Initiative
      • Diversity Leadership Initiatives
      • U.S.-China Dialogue
    • Policy
      • Asia Society Policy Institute
      • Center on U.S.-China Relations
    • Sustainability
      • Asia Society Policy Institute
      • Coal + Ice
  • Countries & Regions
    • Column One
      • Afghanistan
      • American Samoa
      • Armenia
      • Australia
      • Azerbaijan
      • Bahrain
      • Bangladesh
      • Bhutan
      • Brunei
      • Cambodia
      • Central Asia
      • China
      • Cook Islands

      • Cyprus
      • East Asia
      • East Timor
      • Fiji
      • French Polynesia
      • Georgia
      • Guam
    • Column Two
      • Hong Kong
      • India
      • Indonesia
      • Iran
      • Iraq
      • Israel
      • Japan
      • Jordan
      • Kazakhstan
      • Kiribati
      • Kuwait
      • Kyrgyzstan
      • Laos
      • Lebanon
      • Macau
      • Malaysia
      • Maldives
      • Marshall Islands
      • Micronesia
      • Mongolia
    • Column Three
      • Myanmar
      • Nauru
      • Nepal
      • New Caledonia
      • New Zealand
      • Niue
      • North Korea
      • Northern Marianas
      • Oceania
      • Oman
      • Pakistan
      • Palau
      • Palestine
      • Papua New Guinea
      • Philippines
      • Qatar
      • Samoa
      • Saudi Arabia
      • Singapore
      • Solomon Islands
    • Column Four
      • South Asia
      • Southeast Asia
      • South Korea
      • Sri Lanka
      • Syria
      • Taiwan
      • Tajikistan
      • Thailand
      • Tibet
      • Tokelau
      • Tonga
      • Turkey
      • Turkmenistan
      • Tuvalu
      • United Arab Emirates
      • Uzbekistan
      • Vanuatu
      • Vietnam
      • Wallis and Futuna
      • West Asia
      • Yemen
  • Current Affairs
    • Topics
      • Business
      • Climate Change
      • Governance
    • Programming
      • Beyond the Headlines
      • Business of Asia
    • Center on U.S.-China Relations
      • Home
      • About
      • Projects
      • Reports
      • Past Events
      • ChinaFile
  • Look & Listen
    • Asia Society Magazine
    • ChinaFile
    • Podcasts
    • Video Gallery
  • Events
    • Upcoming Events
    • Past Events
  • Visit
    • Visit Us
      • Hong Kong
      • New York
      • Texas
    • Global Network
      • Australia
      • France
      • India
      • Japan
      • Korea
      • Northern California
      • Philippines
      • Southern California
      • Switzerland
      • Washington, D.C.
  • About
    • About Asia Society
    • Inclusion & Diversity
    • Background & History
    • Board of Trustees
    • Senior Leadership
    • Global Staff
    • Global Council
    • Careers
    • Interns and Volunteers
    • Financial Statements
    • For the Media
      • Press Releases
  • Support
    • The Campaign for Asia Society
    • Corporate Engagement
      • Business Council
      • Technology and Innovation Council
      • Global Talent and Diversity Council
      • Rising Executives Network
      • Enhancements to Membership
      • Corporate Membership
      • Global Corporate Leaders
    • Membership
    • Donate
    • Donor Privacy Statement

Indonesia: Rupiah May Have Rallied, But Jakarta's Policy Decisions Still Bear Scrutiny

October 8th, 2013


An Indonesian clerk holds stacks of Indonesian rupiah notes at a currency exchange office in Jakarta on Sept. 4, 2013. (Adek Berry/AFP/Getty Images)

By Stephen Norris and Michael Moran

Related
On September 19, 2013, Indonesian Foreign Minister Dr. Marty Natalegawa participated in a wide-ranging discussion at Asia Society New York, which you can read about and watch in its entirety on our New York homepage. You can also watch Natalegawa discuss Indonesia's "burden" regarding Islam and democracy on Asia Blog.

SINGAPORE — It may never be quite clear how much credit Indonesia's government deserves for righting its currency, the rupiah, as it tumbled with other EM (emerging market) currencies during the recent debate over the timing of the U.S. Federal Reserve Bank's "tapering" of quantitative easing (QE).

QE, of course, launched in several waves since the 2008 financial crisis to inject liquidity into the U.S. and global economy, has pumped trillions of dollars into fast-growing, high-interest-rate economies like that of Indonesia, fueling growth and inflation along with expectations.

So the abrupt fall in the rupiah caught many by surprise and brought back unhappy memories of the 1997 Asian financial crisis, which toppled governments and prompted a regional recession of the like that many had hoped never to see again.

Now, with the surprise news last month that the Fed would continue its QE stimulus for the time being, the rupiah and other EM currencies have rallied. But the policy decisions of last month still bear examination: the Fed's reprieve, remember, is only temporary.

The near-panic that began over "tapering" in mid-August led to a number of interventions by Jakarta. On August 23, the government announced a bundle of measures timed to coincide with an interest rate hike by the central bank. The measures promised to stimulate the economy include pledges to forge a more conducive investment environment, to open six currently-closed sectors to foreign investment and to ease foreign ownership limits in several others.

A second interest rate rise in quick succession in early September showed the central bank determined to address currency and inflation concerns. While the Fed's reprieve reversed the rupiah's slide, nothing in the past several weeks of policy-making productivity will appease investors in some of the country’s most important industries, such as mining or oil and gas, where regulatory migraines have been a fixture in recent years.

In these sectors, companies find a country blessed with relatively reliable economic growth prospects in spite of — rather than as a result of — government management. Last month's stimulus package in some respects tacitly acknowledged a couple of policy flops, most notably in its relaxation of this year's quota on exports of unprocessed minerals ahead of a blanket export ban in January 2014. This allows mineral mining companies to sell their inventories overseas, and the government to earn by dint of a hefty 20 percent export tax.

But ministers remain doggedly insistent that the full ban on raw exports will come into force next year, despite evidence that this would not only harm the mining industry significantly, but that the government will cede up to $1bn a year in lost tax and $300m in royalties according to a 2013 estimate by the U.S. Agency for International Development (USAID). Rebalancing the current account, in deficit at present, in a more sustainable way would be easier without the policy, and aggressive attempts to fast-track creation of a domestic processing industry and "add value" to minerals prior to export. This is one of several unpopular recent mining regulations that sully relationships with active companies, and that make new investments seem an even riskier proposition.

In oil and gas, the government has to some extent been able to fence off ongoing projects from the two largest shocks to the industry (the Constitutional Court-sanctioned dissolution of upstream regulator BP Migas in late 2012 and a widening corruption scandal involving its replacement body, SKK Migas), but is still far from providing the sort of legal and regulatory assurances that would be required to encourage increased capital expenditure on new exploration. This was also a goal in the August policy program. Active energy investors complain about less visible trends in regulation — from transparency in contract extension talks, interference in divestments, and the levying of new, retroactive and contentious taxes. All this is deterring large, long-term investments in one of the Indonesian government's main revenue-generating sectors.

There are other areas of the economy where policy-making trends shuffle from the positive to negative: a bold and necessary move to reduce fuel subsidies has driven up inflation, but an assortment of less explicable trade interventions exacerbated it; new tax incentives for export-oriented manufacturers are all well and good, but their beneficiaries are more concerned about wage hikes and the government's disinclination to take on aggressive unions.

Ministers frame downward revisions of GDP targets as a result of necessarily tough policies in response to challenging external conditions, implying that things could be a lot worse. With lowest projections of 5.5 percent for the year, there is truth in this. But many companies will take an inverted view, feeling that had nationalist, protectionist or populist policy-making been reined in, the outlook would in fact have been considerably better.

The worst-case may have been avoided for the moment, but the Fed has made it clear that its stimulus will not go on forever. The past month may prove to be a very useful dress rehearsal.

Stephen Norris and Michael Moran are analysts at Control Risks, a global risk consultancy.


Below, watch Control Risks' Dane Chamorro explain the political and social climate of Indonesia, and how investors can navigate these challenges. (4 min. 8 sec.)

Related Links

  • Expert: Current North Korea Drama 'More Uncertain and Worrying' Than Years Past
  • Video: The Five Biggest Challenges to Doing Business in China
business
control risks
currency
economics
finance
indonesia
indonesian economy
investment
rupiah
video
china
asiablog
pacific islands
oceania
east asia
southeast asia

About the Author

Profile picture for user Control Risks
Control Risks, an independent, global risk consultancy specializing in helping organizations manage political, integrity and security risks.
 @Control_Risks
About
  • Mission & History
  • Our People
  • Become a Member
  • Career Opportunities
  • Corporate Involvement
visit us
  • Hong Kong
  • New York
  • Texas
global network
  • Australia
  • France
  • India
  • Japan
  • Korea
  • Northern California
  • Philippines
  • Southern California
  • Switzerland
  • Washington, D.C.
resources
  • Arts
  • Asia Society Magazine
  • ChinaFile
  • Current Affairs
  • Education
  • For Kids
  • Policy
  • Video
shop
  • AsiaStore
initiatives
  • Arts & Museum Summit
  • Asia 21 Young Leaders
  • Asia Arts Game Changer Awards
  • Asia Game Changer Awards
  • Asia Society Museum: The Asia Arts & Museum Network
  • Asia Society Policy Institute
  • Asian Women Empowered
  • Center on U.S.-China Relations
  • Coal + Ice
  • Creative Voices of Muslim Asia
  • Global Cities Education Network
  • Global Talent Initiatives
  • U.S.-Asia Entertainment Summit
  • U.S.-China Dialogue
  • U.S.-China Museum Summit
Connect
Email Signup For the media
Asia Society logo
©2023 Asia Society | Privacy Statement | Accessibility | Terms & Conditions | Sitemap | Contact

Asia Society takes no institutional position on policy issues and has no affiliation with any government.
The views expressed by Asia Society staff, fellows, experts, report authors, program speakers, board members, and other affiliates are solely their own. Learn more.

 

 

  • Visit Us
  • Hong Kong
  • New York
  • Texas
  • Global Network
  • Australia
  • France
  • India
  • Japan
  • Korea
  • Northern California
  • Philippines
  • Southern California
  • Switzerland
  • Washington, DC