Rupiah near 15,000 reflects a different Indonesia to 1998

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(Sept 6): The 15,000- rupiah world of 2018 looks quite different from that of two decades ago.

As emerging-market turmoil pushes Indonesia’s currency toward the psychological threshold last seen during the Asian financial crisis in 1998, policy makers are trying everything from interest-rate hikes to import curbs to halt the rupiah’s rout. The currency is down almost 9% against the dollar this year and fears of global contagion mean there’s more pain to come.

Market turmoil aside, Southeast Asia’s biggest economy is in a more solid place than it was when the rupiah last hit 15,000 to the dollar. Here’s a look at how the Indonesian economy of today compares to 1998:

Rupiah Performance

Just how bad is the 15,000 rupiah level? The currency exceeded that mark in June 1998 and would tally eight days at or above it in that turbulent year. From 1999 through the end of last month, the rupiah averaged about 10,171 against the greenback.

While the currency’s slide is among the worst in Asia this year, the depreciation isn’t anywhere close to the 32% plunge against the dollar in 1998 and the 21% drop in 2013, during the ‘taper tantrum’ period.

Bank Indonesia Governor Perry Warjiyo said on Wednesday he’ll take “pre-emptive front-loaded” measures to ensure stability, signaling a possible fifth interest-rate hike this year. The bank is also taking steps to guard the rupiah against a sharp, fast depreciation and will ensure sufficient liquidity in the market, a senior official said on Thursday.

The rupiah gained 0.3% to 14,894 against the dollar as of 11 a.m. in Jakarta on Thursday.

Current Account

Indonesia has endured a roller coaster in its current account, racking up hefty deficits in some years and breaking into healthy surpluses in others over the past three decades. Data from the International Monetary Fund show the economy remained in deficit in the 17 years, leading to the 1997-98 crisis, when it started a 14-year streak in positive territory. It re-entered deficit in 2012.

A large domestic market and efforts to develop the archipelago, including ambitious infrastructure projects, have boosted demand for imports in recent years, with the deficit reaching 3% of gross domestic product in the second quarter.

The IMF estimates a shortfall of about 1.92% of GDP for this year.

Government Debt

General government gross debt or all liabilities of the government subsided steadily in the 13 years of available data through 2012, before picking up a bit in the years since. As a share of GDP, it stood at 87.4% in 2000, versus about 29.6% this year, according to IMF figures.

Inflation Slowdown

One of Indonesia’s biggest economic successes has been bringing inflation down in the past two decades. In 1998, consumer-price growth averaged 58%, according to IMF data. Inflation has been below 5% since November 2015, with the central bank targeting 2.5% to 4.5% for this year.

The IMF’s latest estimate, released in April, was for inflation to average 3.5% in 2018.

Foreign Reserves

A healthy chest of foreign reserves should help shield Indonesia from the same kind of troubles it encountered in 1998. The coffers were worth US$118.3 billion as of July, versus US$19.5 billion in the same month 20 years ago. They’ve been on a steady decline this year, as the government has drawn on the cash to help stabilize the rupiah.

Policy makers used similar tools — currency intervention and interest-rate hikes — to halt the rupiah’s slide during the 2013 ‘taper tantrum’, but the drop in reserves and magnitude of rate increases have been lower so far this year, Goldman Sachs Group Inc analysts, led by Nupur Gupta, said in a report. They see another 25 basis-point rate hike in September.