The Crisis of Argentina and Turkey, the Value of the Rupiah Decreases Sharply
The crisis of Argentina and Turkey, Indonesia was affected until the Rupiah value dropped sharply. You know if the Indonesian economy has been swaying lately. It’s like an uncertain relationship, the effects of the financial crisis in Argentina and Turkey increasingly affect the value of the Rupiah. You could say, Indonesia is now the hardest hit by this crisis.
Just look at it now, the rupiah exchange rate has reached almost Rp. 15,000. Wow, will this be the second monetary crisis? This reminds us of the crisis of 1998. The rupiah exchange rate fell to Rp. 14,750 per US dollar, the weakest level since the Asian financial crisis in 1998 or two decades ago.
But calm, this is not solely the fault of Indonesia or the government’s inability to maintain the value of the rupiah. So the story goes, this condition started from Argentina and Turkey entering crisis mode, emerging markets are under pressure due to stronger US and US interest rates. As US interest rates increase, eventually many entrepreneurs are more interested in investing in developed countries compared to developing countries.
When the difference in yields narrowed because the Federal Reserve raised borrowing costs, emerging markets became less attractive. More broadly, the deepening currency crisis in Argentina over Turkey has reduced investor interest in risky assets, prompting an exodus of funds from emerging markets to a relatively safe place in developed markets.
Then the question is, the crisis happened in Argentina and Turkey, then why is Indonesia also affected by the impact?
So, here … Reported from the Kontan page, Indonesia is one of the few emerging markets in Asia that has a current account deficit (as well as India and the Philippines). And the latest data shows that the current account deficit widened to the highest level in four years.
Now this deficit can occur due to the flow of foreign capital to finance import needs, making Indonesia vulnerable to declining sentiment and sharp capital outflows. Foreign investors own almost 40% of Indonesian Government bonds, including one of the highest in Asian emerging markets. Moreover, the Government of Indonesia is running a budget deficit, which means that it needs to borrow to finance spending or spending.
Another perceived impact is the decline in the Composite Stock Price Index (CSPI) of more than 6% in 2018. This condition is exacerbated by the 10-year government bond yields that have increased this year to the highest level since the end of 2016.
Then, How Are Bank Indonesia (BI) Efforts to Increase the Rupiah Value?
Actually BI has raised interest rates to a total of 125 basis points since May 2018 and intervened in both the currency and bond markets to hold the rupiah. BI has said it is ready to respond to excessive market volatility and has maintained a hawkish monetary policy.
The central bank has also confirmed further intervention in the currency and bond markets on August 31 because the rupiah fell to the lowest level against the US dollar since 1998. While the Indonesian Government also prepared policies to support the supply of US dollars. For example, announcing various steps from plans to limit imports of consumer goods, accelerating the use of palm-based biodiesel to cut fuel imports and efforts to increase tourism and exports.
The government has also asked Pertamina to be the sole buyer of locally produced crude oil to help reduce oil imports.
The hope, with a policy that the government does the value of the rupiah can stabilize. Finance Minister Sri Mulyani Indrawati also tried to show in several interviews that Indonesia’s economy could be in a stronger position than 2013, given greater foreign exchange reserves and lower inflation. Indeed, the impact in April 2018 Indonesia has considered steps to re-take debt in order to increase economic resilience to global shocks.