TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
Steps taken to head off future crisis
The government promised Tuesday to step up measures to strengthen the economic fundamentals and restore investorsâ confidence, so that the recent sell-off in rupiah assets would not turn into a full-blown capital flight like what happened in the 1997-1998 Asian financial crisis
Change Size
The government promised Tuesday to step up measures to strengthen the economic fundamentals and restore investors' confidence, so that the recent sell-off in rupiah assets would not turn into a full-blown capital flight like what happened in the 1997-1998 Asian financial crisis.
Coordinating Economic Minister Sofyan Djalil said the government would push forward the implementation of one-stop services to process investors' business permits in January 2015, intending to attract more foreign direct investment (FDI) inflows needed to support the country's balance of payments.
Finance Minister Bambang Brodjonegoro said the fiscal deficit, the gap between revenues and spending, could be lowered to below 2 percent of gross domestic product (GDP) in the revised 2015 state budget, which would mean lower reliance on foreign funds for financing. The deficit stood at 2.4 percent this year.
The fixed-subsidy scheme, which would set the subsidy amount around Rp 1,000 or Rp 2,000 per liter of subsidized fuel to safeguard the fiscal balance, may happen sooner than later, according to the finance minister.
There would be more intensive efforts to push state-owned firms to hedge against currency risks, Bambang said, adding that the Finance Ministry would also perform buybacks on government bonds in the secondary market when necessary.
'We are now working hand-in-hand with Bank Indonesia [BI] and the Financial Services Authority [OJK] to cope with this 'abnormal' situation that has overwhelmed the economy over the last few days,' Sofyan told reporters in a press briefing at his Jakarta office.
The measures were announced as emerging economies saw broad-based outflows of a magnitude that was last seen in the economic crisis 16 years ago.
The sharp decline in the ruble on the back of falling oil prices and Western sanctions in recent days has sent emerging market investors into panic, causing the plunge of most Asian currencies including the rupiah.
The Indonesian currency, which fell 1.9 percent to Rp 12,698 against the US dollar on Monday, halted its decline against the greenback on Tuesday. The rupiah plunged deeper to 12,900 per US dollar in early trading, the weakest since the 2008 financial crisis, but managed to recover to 12,680 per dollar in the afternoon, following the central bank's intervention, according to Bloomberg.
'Over the last few days, our intervention in the foreign exchange [forex] market has been higher than usual,' BI Deputy Governor Perry Warjiyo told reporters on Tuesday, adding that the rupiah's latest fall was 'too excessive'.
In the bonds market, BI had spent Rp 1.7 trillion (US$134 million) over a two-day time frame to buy government debt papers, Perry said, without disclosing the amount that BI had splurged in the forex market.
The share prices in the Indonesian stock market also plunged Tuesday amid panic selling in other emerging stock markets. The Indonesian Composite Index (JCI) dropped 1.6 percent to close at 5,026 after losing one percent on Monday.
OJK chairman Muliaman D. Hadad said he would roll out new policies in the financial market to ease investors' concerns, such as possible new regulations related to the buyback of shares.
He also expressed optimism that the small banks, most of which are now already enduring difficult times due to the tight liquidity environment, would remain resilient against capital outflows. 'Small banks in general tend to have little exposure to foreign currency risks,' said Muliaman.
Geoffrey Kendrick, an executive director of Morgan Stanley, which last year classified the rupiah as among the 'Fragile Five' currencies most vulnerable to outflows, noted that the currency's latest movement to 12,900 per dollar deviated far from fundamentals and, therefore, had defied the market's logic.
'The fundamentals in Indonesia are relatively sound, certainly compared to other emerging market countries that have seen accelerated pain,' Kendrick told The Jakarta Post.
'In short, I see the sell-off of bonds and currency over the past few days as creating an excellent opportunity to buy both.'
