08/29/2013, 00.00
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Jakarta, weak currency and rising prices threaten economic growth

by Mathias Hariyadi
In recent days, the Indonesian rupiah has touched the lowest level in the last three years, with a rate of 1 in 11,300 to the dollar. Investors fleeing and businesses are moving lock stock and barrel to neighboring Vietnam. Bureaucracy and legal uncertainty exacerbate the problem. Experts talk about a "fragile and uncertain" situation. The government seeks urgent action , including an increased taxation of luxury goods.

Jakarta (AsiaNews) - The devaluation of the rupiah against the U.S. dollar , which in recent days has reached high levels , is likely to jeopardize the growth prospects of one of the most promising economies of the Asia-Pacific region . Inflation has first hit industries and companies with a rising costs of raw materials. Now it is also affecting families, with the rising prices of basic necessities such as soybeans, the basic ingredient of many daily recipes. The warning is confirmed by experts and economist , who speak of a "fragile and uncertain " situation, the government is trying to run for cover and does not rule out raising taxes for higher bands, in particular targeting the luxury goods.

In recent days, the Indonesian currency hit an all time low over the last three years, with an exchange rate against the dollar of 1 to 11,300 , while in the past it averaged 9.500/9.800 rupees to the dollar. This brings to mind the financial crisis of the late '90s , when there was a minimum of 1 to 12,000 when , a few months before, the exchange rate was 2.200/2.500 .

Among the main consequences of the financial crisis of the 90s , the fall of the thirty-year regime of President Suharto ( 1967-1998 ), his successor , BJ Habibie , fared no better with a monetary crisis that led the rupee to its lowest point ( 1 to 18,000 to the dollar ) in 1999 and the expulsion of the head of state. Elements that spread fear among the members of the government of President Susilo Bambang Yudhoyono .

At first, the current crisis did not seem to affect the population. The initial impact from the unfavorable exchange rate hit business and enterprise with rising prices in the import of materials. However, this factor then spread to the electronics and the motor industry. Today, however, it is also impacting the prices of food and basic necessities, as well as shipping and commercial ports.

Economists and financial experts in Jakarta emphasize that Indonesia's external debt, the most populous Muslim nation in the world and among the most dynamic in South -East Asia , will increase " up to 30% " because of the crisis , adding to the devaluation of the currency.

This is also confirmed by the vice -president (and former governor of the Central Bank ) Boediono , who states that it is an economic " red alert " . "The situation is fragile and uncertain ," he adds , the passive data in exports and flight of capital in dollars are not signals that lead to cause for optimism. However, he vehemently denies the suggestion that the country could slip back to the levels of black three-year period 1997-1999 , which then led to the intervention of the International Monetary Fund (IMF ) to save the country's banking system .

Moreover in recent years more and more industrialists, entrepreneurs and foreign investors have decided to transfer companies and factories from Indonesia to other nations, particularly Vietnam. This fuelled by the uncertainty of the law and excessive bureaucracy , which combined with the stratification of institutions and skills makes it difficult to do business in the archipelago. Many are critical of the reform law passed by Parliament in 1998 - post- Suharto dictatorship - that hands regional leaders (a sort of governor of the area of ​​jurisdiction ) the power to grant and take away business concessions.

To address this problem and remedy the state crisis, the Inland Revenue , the Central Bank and the Ministry of Finance proposed a revision of the tax system , which will affect goods and luxury items previously exempt from tax such as expensive private jets , boats and luxury cars. The increase will vary from 75% to 125 / 150%.



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See also
U.S. debt approaches insolvency; Chinese currency reserves at risk
Islamic party expecting unrest in Amman because of soaring prices
Pakistan asks for international loan to avoid default
Chinese inflation up 6.5% in July, never so high in three years
Yuan reaches historic high against dollar


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