T

here are big differences between now and 1998. Different problems and a different world.

The rupiah is not in freefall. It has been propped up by short money from abroad in speculations on rather thin trade of both the currency itself and on stock exchange.

Despite the urgent need for places to store '€œlong money'€ there are still no regulations or policies to support this.

Bank Indonesia'€™s efforts to stabilize the currency have been to incentivize use of the rupiah. Transaction costs and productivity are still working against a stronger currency and most policies coming out do nothing to address this.

The failing new social security system would have been so much better with a simple and transparent system for consumers and providers, which would have increased GDP contributions. Instead, money is being pumped out to subsidize imported energy.

The additional restrictions against investment in general and foreign investment in particular has further crippled confidence in further investments. Political uncertainty, distrust in the administration and increasing contradictions in fiscal and legal '€œreforms'€ makes the '€œcountry risk'€ so high that regardless of the efforts to promote Indonesia, it still doesn'€™t pass by simple due diligence.

The solutions are less administration, shorter lead times, laxer fiscal rules and a more open society with better access to information. This could be achieved fairly quickly and easily, but requires political courage and unity, something we have not been spoiled with for a while.

I am not sure Jokowi will pull it off, but the slowdown will not become a recession or a new revolution. It will be hard times with increased tension, and possible some fallout for some of the weaker companies.

The social differences will increase, with an even more difficult next election. Indonesia will overcome the crisis in the end, but possibly with a high price with a generation unemployed and ill-prepared for the future.

OB
Jakarta