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Indonesia Impaled: Currency Crashes To 1998 Asian Crisis Low As Exports Crater
On Monday we laid out the rather dire road ahead for the world’s emerging economies in the face of China’s entry into the global currency wars. The path ahead is riddled with exported deflation and decreased trade competitiveness for a whole host of emerging economies [and] all of this is set against a backdrop of declining global growth and trade, a trend which many had assumed was merely cyclical, but which in fact may prove to be structural and endemic."
Well don’t look now, but trade just collapsed for Indonesia as exports and imports plunged 19.2% and 28.4% (more than double to consensus estimate), respectively in July.
Imports of raw materials dove 24%. Manufacturing and palm oil exports fell 7.1% and 2.4%, respectively, nearly tripling June’s declines. Oil and gas exports fell nearly 8%.
Meanwhile, Bank of Indonesia kept its policy rate on hold at 7.5% and indeed the bank looks to be stuck in a dilemma similar to what we described earlier this month when we noted that "EM central bankers are grappling with slumping exports and FX-pass through inflation or, more simply, bankers are caught between a 'can’t cut to boost the economy' rock and a 'can’t hike to tame inflation' hard place. The rupiah, like the Malaysian ringgit, is trading near multi-decade lows and hit its weakest level since August 1998 earlier in the session. Depressed commodity prices and slumping demand from China aren’t helping.
And neither is Beijing's devaluation of the yuan which means that suddenly, Indonesia has lost export competitiveness to China while anything China imports from Indonesia will now cost more.
"We believe there is a strong case for the central bank remaining on hold this year," Barclays notes, adding that "BI is visibly more reluctant to weaken the IDR in the near term, to avoid stoking imported price pressures [and] the commodity drag due to weaker demand from China has not subsided." Similarly, Toru Nishihama, EM economist at Dai-ichi Life Research Institute says the "hurdle is higher for BI to cut rate due to the rupiah’s move even though inflation will slow toward year-end due to base effect from last year’s fuel price increase." Of course cuts, even if they do come, are now less effective in terms of boosting exports as the yuan devaluation puts upward pressure on regional NEER.
In other words, there are no right answers. Just more pain and further pressure on the beleaguered economy and severely battered currency and further evidence that between China's entry into the global currency wars, depressed global commodity prices, the threat of an imminent Fed hike, and a generally lackluster environment for global demand and trade, the world's emerging markets face a perfect storm with no end in sight.
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Bullish for religious violence.
Go Long on Ramen Soup and Cup of Soup.
Why can't Indonesia share in the Chinese Communist Utopia? So much unnecessary suffering when they could just embrace the theme.
I actually live in Indonesia (Bali) and understand both Indonesia and Asia in a broader sense very well, having spent the greater part of my life in the Region. Indonesia has never been a communist country, although the CIA was complicit in the overthrow of Sukarnoo who leaned towards Moscow after telling Washington to "Go to Hell with your AID", which was the usual CIA subterfuge. And over the years its domestic political problems tend to have been against the local ethnic Chinese population, who have doen nothing actually other than to work hard and mage successful businesses. SO, one might say, anti-Chinese?
As of recently, Indonesia's economic problems have been caused by Gasoline subsidies, which have been removed. As of now, with the fall in Oil prices, Indonesia is making a profit on domestic gasoline sales and its overall budget defecit has fallen below 2%. Its population base is about 275 Million and its economy is, very similar to The US, comprised about 70% domestic consumption.
Unlike the US, its total debt is about 70% to GDP and there are no "Off Balance sheet" items. That's it. So which is the basket case?
If you have anything intelligent to discuss about Indonesia, I would be pleased to engage you. If not, might I respectfully suggest that you STFU?
No slight intended to Indonesia, Simply suggesting that China, a major proponent of Communism, is failing and pointing out that their failure is obvious to all, including their neighbors, and many of us in America as well. Big Government solutions are the bitter pill with more side effects than benefits.
As far as your defense Indonesia, I would respectfully submit that much of their economic success has been due to America's misguided attempt at free trade which allows imports duty free while virtually none of those exporting to us allow reciprocal arrangements. It seems protectionism is a perfectly acceptable trade policy as long as you are not America.
Nothing is as apparent as it seems.
Kindly quote official bilateral trade figures between Indonesia and the US? Or I will. It's positive in the favor of the Indonesia but insignicicantly so, such that I still don't understand what point you are trying to make specifically concerning Indonesia?
Regarding China, I have posted several times recently in favor of trade restrictions. That said, China holds all the cards, which is, of course, why the US is now "Mixing things up" and stiring up wars, just in case the need for obfuscation grows?
Forgot to add that, to its credit, Indonesia never really fell for the "Economic Hitmen". Foreign investment in Indonesia has never, since the Dutch times, been significant other than at the margin. Indonesia had the good sense, since independence in 1945, to prohibit ownership of land by foreigners and restrict FDI in favor of local interests, much to the ire of US business interests. Indonesia doesn't really need the outside world, it has ample supplies of food and energy, just as The US, if the Government represented the people not the Corporations, doesn't need the outside world either...
Philipat,
Are you serious my friend?....how was the 1997 currency crisis resolved? Indonesia was financed to the tonsils with US denominated debt.
Currently the USD is appreciating whilst the pants on EM's are being dropped.
The administration of the country is and always has been run by ignorant, ridiculously stupid and self interested beuracrats whose singular objective was to line their pockets whilst in office.
They have taken the 'cheese' offered by international finaciers and now they will serve up there public as the rats.
Dont believe me?
......wait 2 years and then get back to me
FFT
No need to wait.
Everything you said was clearly proven after the 1998 crisis.
Kind of how Greece is selling of the interest of its people to western Bankers.
They fell for the Islam trap, it won't be long before they are fighting with someone along religious lines.
Phuk-it!
I'm off to Bali for 6 months!
Get it through your heads. Greece is just the canary in the coal mine. There will be a major crash somewhere every other month, until this whole fake money pyramid comes down. The US is special guest at the party.
Well technically it is our party after all. Shouldn't we have a seat at the head of the table?
No, don't worry the WTO and UN were created to take leadership of currency and trade wars like this.
S/
Just wait.
The WTO will make a Profound Statement this week that will turn all of this one it's head.
This will be followed by very important move by ASEAN.
There is an end, but it's out of site.
Far out.
China will try to negotiate that the Baht, Dong, Yen, rupiah and ringgit should be pegged to Yuan.
No surprise right it is part of currency war and Hegemony.
China is lighting fuses all over the place. One of them has to lead to an explosion somewhere.
And what I hear this AM on the radio - "Wow, China has problems".
What TPP ?
moar good news, markets will rebound.
No matter how badly vietnam's currency fares, I'm probably never going to declare I'm short Dong.
Indonesia is one of my favorite sailing destinations. The majority of inter island commerce is still using sailing cargo vessels. See the blue sail in my avatar. It's made out of blue poly tarps.
So much for all that growthin the worlds middle class.....in the next few years they will have lost everything....and back to rice and beans....but a trade war is soon upon us....the last gasp of air from a drowning country
I saw an article a few years ago, that Indonesian manufacturers a lot of its consumer goods and that people there like to buy made in indonesai.
I suppose they can do this becasue of thei rlarge population.
Eg they are not innundated with cheap Chinese trinkets.