IO – Last Friday a 7.5 magnitude earthquake struck in the neck of Minahasa Peninsula—not long thereafter, as tsunami warning systems failed and locals remained outside their residences without any sense of the danger lying ahead of them, overpowering twenty-foot tsunami waves arrived and savagely devastated the central coast of Sulawesi. Hitting primarily the settlements of Palu, Donggala and Mamuju, more than 2,500 buildings were turned into rubble, if not by the quake then the powerful tsunami waves that wrecked destruction upon a landscape now beyond recognition.
So far over a thousand people have been found dead, scores were wounded in dire need of medical aid. The final body count could easily rise by the thousands once rescue workers reach remote areas and lift the remaining debris. Although the toll on human life and destruction pales in comparison to the 2004 Indian Ocean tsunami, which killed 230,000 people in eleven countries and was the deadliest tsunami in recorded history, it will undoubtedly be ranked as one of the deadliest after the 2011 tsunami in Tohoku, Japan.
There are reports from international news agencies covering the aftermath in the coastal city of Palu that aid is slow in coming. Food is scarce and rescue efforts have been handicapped due to the lack of heavy equipment. Making matters worse, Indonesian authorities have reported more than a thousand inmates escaped from their jail cells, which has exacerbated the state of lawlessness in the area as desperate locals have been seen looting shops, ransacking ATMs and forcibly stopping aid vehicles.
There has been a second sort of “quake” over the past week, only economic in nature—but one should be sure there will be aftershocks for many months to come. The continued slide in the rupiah, as it dropped to a dollar exchange rate of slightly more than fifteen thousand, making it the worse performing currency in the Southeast Asia region, has now brought the currency to its lowest level since the Asian Financial Crisis. With the U.S. Federal Reserve expected to increase its benchmark interest rates several more times over the coming months and continued uncertainties over U.S. President Donald Trump’s trade wars, emerging economies such as Indonesia’s with large current account deficits will undoubtedly face more downward pressure on their currencies.
Economists believe even if central banks, including Bank Indonesia, attempt to stave off depreciation by raising key rates and intervene in foreign exchange markets, it will still be extraordinarily difficult to stabilize their currencies. And, if they continue to run down their forex reserves, speculators could launch attacks that would ultimately make their currencies even weaker.
Both of these challenges are, without exaggeration, daunting.
One involves expeditiously bringing sufficient aid to quake and tsunami-stricken areas of Central Sulawesi to alleviate the suffering of locals and therefore preventing yet more fatalities as the risks of insufficient health care for the injured and famine spikes in the coming weeks. Massive rehabilitation and reconstruction efforts will be needed to bring life back to normal.
The other involves taking policy measures to tackle the underlying weaknesses of the economy. Indonesia has been more vulnerable than other emerging economies in the region because of its high deficit and debt figures. This is in stark contrast to Thailand, which has a large current account surplus and foreign exchange reserves—consequently the Thai baht has remained strong while other currencies, such as Indonesia’s rupiah and India’s rupee, will remain vulnerable.
The Jokowi administration should realize there are no quick fixes for restoring order to Central Sulawesi and stabilizing the economy. Both will require the government to admit its policy deficiencies, and to take corrective measures.
Until now, neither the president nor his administration seems willing to take full ownership of the underlying problems and challenges that invariably lie ahead. As reported by the New York Times, one of the world’s premier daily newspapers, Indonesia’s tsunami early warning system is dysfunctional, and “a network of 22 buoys that was supposed to monitor for movement on Indonesian open water has not been operational since 2012.” Yet Jokowi officials have offhandedly dismissed this problem— Rahmat Triyono, the earthquake and tsunami chief at the meteorology agency told the Times that the buoys were “not crucial to Indonesia’s disaster preparedness.”
Equally disturbing were statements by the local authorities it would not require international aid to assist Central Sulawesi citizens in critical need of emergency food supplies and medical care, and that their aid would only be needed for reconstruction efforts. It was only after much criticism were some aid agencies let in to feed the hungry and take care of the seriously injured.
Vice-President Jusuf Kalla more recently joined the bandwagon of government officials saying Indonesia only needs help with reconstruction efforts when he outright rejected hospital ship aid from the United States, and Coordinating Minister for Law, Security and Political Affairs Wiranto said the government would only accept aid selectively after an outpouring of offers from eighteen countries. This message, of ‘we have everything under control’ and the need for outside assistance is limited was amplified by Health Minister Nila Moeloek when she told the Indonesian media there are now sufficient number of doctors to treat patients in areas affected by the earthquake and tsunami. Yet, at the same time, international aid agencies are telling a different story, that much more help is needed. In the words of one relief worker, “the smell of death is strong in the air.”
On the economics front, there is a similarly disturbing pattern of feigning all is well when the facts suggest otherwise. Coordinating Minister for Economics Darmin Nasution recently told the local press the weakening of the rupiah was purely because of external factors and blamed it on the plunge of the Argentinian peso. Nasution said “[the currencies] on Malaysia and Thailand have also been weakening.”
But as mentioned earlier, the fall of the rupiah has been much more dramatic than other regional currencies, and this can be largely attributed to structural weaknesses in the Indonesian economy. Seasoned economists point out interest rate hikes won’t stop the weakening of the rupiah unless it is accompanied by structural reform measures. Currency analysts believe the rupiah could weaken even further, to levels around eighteen thousand rupiah to the US dollar, which, if it does happen, could lead to dramatic increases in non-performing loans and credit problems in financial institutions. When queried about the recent decline in the rupiah and what could be done, Coordinating Minister Nasution quipped, “I have to go home. I want to study it. We will see.”
Is the Jokowi administration prepared to meet the challenges now facing the economy and Central Sulawesi? It certainly does not seem so. And contrary to what the Jokowi would like us to believe, everything is not under control.