Rupiah continues to slide: how will Pak Jokowi dig us out of this crisis?

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Salamuddin Daeng

IO – The Indonesian Rupiah has been sinking steadily and acutely throughout the year, losing over 7% against its 2015 value. If it continues its downwards slide (and this appears to be quite likely), we are in even more danger.

What is the worst-case scenario? That no one would find our Government Bonds attractive, because there’s no profit to be made when the Rupiah currency is weakening continuously. Ironically, now is precisely when the Government is in need of a great volume of money, simply to pay down its maturing debts, which in 2018-2019 amount to Rp 750~800 trillion, depending on the currency exchange rate. If the Rupiah fails to pick up (no sign of this yet), the value of the Dollar debts would be astronomically steep when converted into Rupiah.

The Government cannot possibly raise this gigantic sum without going further into debt, as most State income (taxes, profit-sharing, royalties, customs and levies, etc.) only covers routine expenses. The Government simply does not have the money to repay even the principal on loans that are coming due, let alone the exorbitant amount of interest for such loans.

As stated earlier, Government Bonds become unattractive when the Rupiah exchange rate is so dodgy; foreign creditors simply lack confidence in our Government’s ability to repay its debts. Even the latest effort to retail Bonds at Rp 1 million per certificate will be tricky to realize – even if it sets up retail bond kiosks all the way into villages, hoping that workers, farmers and fishermen might buy them. After all, these small-time workers are not used to save their earnings in paper form.

Another alternative is to sell off State assets. Unfortunately, we have sold off all our significant “jewels” in our State-owned Enterprises (Badan Usaha Milik Negara – “BUMN”). The only thing we have left are land and building assets belonging to Central and Regional Governments. While conglomerates are delighted to purchase this type of asset, it is hard to sell because they normally require bank loans, and our domestic banks are also in a critical condition.

This year will be a “year of drought” for Jokowi’s Government, because it will apparently be unable to pay off outstanding debts something unthinkable to Indonesians – what will happen? Will the entire Governmental machinery come to a halt, or will investors foreclose on our country to squeeze out payment of reckless Government debts? Would the rock or the hard place be better?