Indonesia’s Money Crisis: What Investors Are Worried About

The new president of Indonesia has made a big promise: give free meals to millions of school kids and push the country’s growth fast. His plan has been hit by several problems that make investors nervous. One problem is the country’s currency, the rupiah. It has fallen to a record low of about 18, 200 for one US dollar and keeps dropping. The weaker currency pushes up prices, hurts the return on foreign investments, and makes borrowing more expensive. Another issue is the way the government handles its money. The president created a huge state fund that controls commodity exports and reported straight to him. He also gave the central bank a new job: help grow the real economy. Many experts say this weakens the bank’s independence and could make policy less clear. The result is a lot of money leaving Indonesia. Investors have sold billions of dollars worth of stocks and bonds, the biggest drop in many years. Foreign ownership of government debt is now below 13%, a low not seen for two decades.Credit rating agencies are watching closely. If they lower Indonesia’s credit score, borrowing costs will rise and more investors might sell. Some rating firms have already said their outlook for Indonesia’s debt is negative because of the government’s uncertain policy direction. Global events have added pressure. The war in the Middle East has pushed up energy prices, which hurts Indonesia’s budget because it still subsidises fuel. The president has not cut these subsidies, making the problem worse. Many analysts believe that to stop this downward spiral Indonesia needs a big policy shift. They say the country should focus on realistic growth goals, keep its financial institutions independent, and manage the currency better. Without such changes, investors fear a continuing decline in the country’s economic standing.