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The Rupiah Is at '98 Crisis Levels, But Does Rp 15,000 Really Mean the Same Thing Today?

We explain why there is no need to panic... yet.
Illustration by Farraz Tandjoeng

For many Indonesians, the worst economic crisis in history feels like it's only yesterday. In 1998, the rupiah weakened to 16,800 against the US dollar as the Asian Financial Crisis hit Indonesia. That near-collapse of the national economy, called Krismon, still hangs heavy in the national consciousness.

Now, the steady decline of the rupiah's purchasing power has some worrying that it's about to happen all over again. The rupiah recently hit Rp 15,000 on the US dollar, it's weakest point since the crisis days. The last time the rupiah fell this far, the country erupted into riots that continue to haunt the nation to this day.


But here's the thing, this is nothing like the crisis. While the reasons behind the rupiah's fall might be similar to 1998, the country isn't anything like it was back then. The Indonesian economy is far better at bouncing back from these kinds of monetary hits today long before it teeters on the brink of a new crisis.

I know, I know. Just saying it doesn't mean people are going to freak out less. So we are going to try to break it down for you to let you know that, while Rp 15,000 on the US dollar definitely sucks, it's not going to bring the economy to its knees. Here's why:

It's not entirely our fault

It’s important to understand the roots of today’s rupiah problem. Firmanzah, the ex-president of the Economic Advisory board of the University of Indonesia explained that, simply put, the trade war initiated by the United States are causing interest rates and taxes to skyrocket, hurting several so-called "emerging market economies," like Indonesia, India, and Mexico. As a result, foreign investors lose confidence in these economies and they begin to invest elsewhere. Combined with the fact that Indonesia has a pretty big trade deficit, the rupiah is bound to suffer in situations like this.

This current economic crisis didn’t begin in Indonesia’s backyard either, said Bhima Yudhistira Adinegara, an economist at Indonesia’s Institute for Development and Finance (INDEF). But it does hold a good lesson for all developing nations—too much foreign debt by one or more developing nations may trigger a wider contagion.


“The ‘98 crisis happened because foreign debt grew uncontrollably due to wild speculation," Bhima said. "Turkey and Argentina’s massive foreign debt have become a crisis for them in 2018. The similarities today are that the ‘98 crisis began in developing countries like Thailand and Indonesia. The current downturn is the same, but it began in Argentina, South Africa, Turkey, and Venezuela.”

The weakening rupiah isn't all that surprising

Everyone, no matter their socio-economic class, will feel the brunt of crisis-level inflation, Bhima said. But that doesn’t mean we’ll actually fall off that cliff. The last time the rupiah hit Rp 15,000 against the US dollar, it was only Rp 3,000 just six months prior. It was, by all accounts, a total shock.

In contrast, today’s shitty exchange rate has been a long time coming. The currency has steadily dropped in valuation over the last five years, briefly reaching Rp 14,800 against the US dollar in August 2015 ,only drop back down to a more palatable Rp 13,000 over the next few months.

But as much as the rupiah has been declining over the years, there’s also no real proof that young people of productive age today are earning less than their parents did, say, 25 years ago.

“Nominally speaking, of course now people make more," Firmanzah said. "But that’s a nominal figure, with inflation it’s not so easy to tell.”

Watch: India's Cash Crisis

The Rp 15,000 fear is a psychological one, for the most part

It’s reasonable to be concerned about Indonesia’s economic health, Firmanzah told VICE. But, he also said that the fear towards the Rp 15,000 figure is mostly psychological. “Rp 15,000 is an emotional figure,” he said. “In the past, the Financial Services Authority did an analysis about whether Indonesia could survive if the rupiah hits Rp 15,000 against the dollar. This figure then becomes the benchmark [of a worrying exchange rate]”

While it’s true that Indonesia’s current economy isn't in the best shape, experts like Firmanzah are still fairly confident that Krismon-level chaos won’t be happening anytime soon, thanks to all the changes that took place in post-Suharto Reformasi period.


“The 1998 crisis was also worsened by the New Order’s social climate," Firmanzah told VICE. "There wasn’t any democracy, and the politics caused everything to be tense."

But now, with the help of autonomous economic institutions like Financial Services Authority (OJK), things aren't as bad.

Bhima, however, is less optimistic. He believes that Indonesia is in a transitionary period and that the rupiah will drop to an even lower point before the end of the year.

“Hopefully it won’t be as bad as ‘98," he said. "But if the question is whether there’s already a global economic crisis, then the answer is yes. The rupiah has already weakened 10 percent since the start of the year.”

Still, the rupiah will be just fine… at least until Rp 47,241

Central bank data shows that a more realistic benchmark for a Krismon-level crisis is Rp 47,241 against the dollar. And Bhima pointed out that the BI's massively increased capacity to stabilize the currency will get the country through rough waters.

“In 1998 our foreign exchange reserves were only $23 billion USD, in comparison to the latest data we have from July 2018, when we had $118 billion USD worth of reserves," he said. "This massive jump means that our capacity to stabilize the rupiah’s value is much better compared to in ‘98.”

Despite this optimism, he admits that a possible leap past Rp 15,000 will still affect people’s livelihoods, maybe in even worse ways than '98. And the country's current addiction to convenient LPG canisters as a fuel source could be one of the reasons.


“Back in ‘98 small and medium-sized businesses in the villages could still survive," Bhima said. "When the crisis hit and the price of fuel skyrocketed, a lot of small businesses were still using firewood as an alternative energy source.

"Now, if the global cost of oil goes up, the government won’t have any other choice but to raise prices. And if the fuel price goes up while purchasing power goes down… well, that translates into a more complex situation than ‘98. If a 2018 crisis hits, it might be worse because even the lowest levels of society will immediately feel the shock.”

Rising fuel prices aside, Indonesians will also have to sacrifice the things we've taken for granted, like the foreign electronics, the 11 million tons of wheat, and the 2 million tons of rice we import every year if another crisis hits.

The bottom line is we’re not as doomed as many people think, but we're also not totally in the clear either. Firmanzah believes that while things are much better today, no country is immune from a massive monetary crisis.

“It’s like a flu," he said. "It’s not lethal and at first you’re only going to feel slight headaches and discomfort. But just like flu, if you don’t treat it immediately there’s a real potential that it will kill you.”