The brief rise in oil prices took Indonesia's stock market into positive territory on Friday, by far the best gains in Asia. The Jakarta Stock Exchange composite index finished the day up 2.0%, with most Asian markets in the red.
But despite Friday's gains, Indonesian stocks are down 26.6% this year. Although few international investors may have exposure to Indo stocks, the performance of the country's currency, the rupiah, is exceedingly worrying.
It has the whiff of panic about it that was last experienced during the Asian financial crisis of 1997-98. Back then, the crisis led to rioting in the capital, Jakarta, the collapse of big business, and the downfall of the dictator Suharto. Small consolation that democracy ensued.
Indonesia has puzzled us observers here in the rest of Asia by declaring no Covid-19 cases at all until early March. It sounded extremely suspicious that the world's fourth-largest nation in terms of population had escaped a scourge that had crept into virtually every corner of the globe.
It's likely that Indonesia was simply not testing for the disease. Even now, its count sounds extremely low, at 1,986, with 181 documented deaths, among a population of 268 million. It surely won't be spared for long - the 196 new cases confirmed on Friday is a record one-day rise.
The rupiah is suffering even worse than normal emerging-market monies. The Indonesian currency has lost 21.8% since January 26, as international investors liquidated what they saw as their riskiest bets. Besides selling emerging-market stocks and other assets, investors in developed economies tend to repatriate holdings into safe havens like the U.S. dollar, yen and euro.
Like the Thai baht, the rupiah had been one of 2019's stellar performers. The rupiah ran up 10.7% between November 2018 and the start of the coronavirus scare at the end of January. But its decline of twice that amount since then has been the worst in Asia by some stretch, ahead of the Thai baht's 12.4% drop. A Reuters poll this week suggests it will likely be a full year before emerging-market currencies regain much ground against the U.S. dollar.
The rupiah has been further weakened by central bank interest-rate cuts. Bank Indonesia has slashed the policy rate six times, for a total of 150 basis points, since it began easing rates last year.
President Joko Widodo declared a public-health emergency on Tuesday. The move allows the government to suspend caps on budget spending. Jokowi, as he's universally known, signed an order giving the financial authorities power to "take extraordinary steps to ensure public health, save the national economy and the financial system."
But he has steadfastly refused to declare a national lockdown, or a civil emergency. It looks like Indonesia is making many of the mistakes made elsewhere around the world, resisting stringent social restrictions until it's absolutely clear that it's already too late.
For now, Jokowi has devolved the decision making to regional administrations. It's up to them to decide whether to close schools and workplaces, or restrict religious ceremonies. Jokowi says a national clampdown would be a last resort. He has called for "large-scale social distancing and physical distancing."
But he didn't explain what that meant, or how it would be policed. To confuse matters further, some districts have started unilaterally shutting their borders and denying entry to outsiders, a decision that Jokowi said could only be made by the national government.
Jokowi on Tuesday announced US$24.9 billion in stimulus measures, extending social welfare to 10 million households, offering food aid, and electricity waivers. Moody's says the Indonesian government's steps will at best buffer the impact of the Covid-19 shock on the nation, rather than resolve or reverse it.
The stimulus was squandered after the Asian financial crisis. "The Covid-19 crisis playbook bears an eerie resemblance to the 1998 crisis," the Jakarta Post states. Back then, the central bank swamped the system with liquidity support to commercial banks, "but most of the money was eventually embezzled." The government eventually stepped in to nationalize most big banks.
The central bank has now cut its forecast for growth in 2020 for the third time, to between 2.3% and 2.5%, half the 5.0% rate in 2019. That would be the worst economic performance since 1999, at the end of the Asian financial crisis.
Indonesia bore the brunt of the "AFC." A shocking devaluation of the currency, shooting from 2,600 to 14,000 to the U.S. dollar, left its largest companies holding huge amounts of foreign-currency debt that they could no longer serve. Its economy vaporized 13.1% of its value in 1998 alone.
Now Indonesia braces itself for repeat performance. At 16,590 to the U.S. dollar, the rupiah is at its weakest since the worst spikes during the AFC. The positive side is that Indonesian businesses learnt their lesson, and have far less foreign-currency debt.
As a frequent traveler around Asia, I use the U.S. dollar as my default mental currency. Asian travel involves a lot of mental math when you're trying to buy lunch off a street vendor. The "Alex internal rate" for the rupiah is 15,000 to the buck! But it'll take a clear end to this crisis to see it return once again to my imaginary rate.
If Indonesia does achieve the government's forecast, it would be pretty much in line with estimates released on Friday from the Asian Development Bank. The ADB slashed emerging Asia's overall growth expectations by half, expecting growth to slow to 2.2% in 2020 from 5.2% in 2019.
The Manila-based ADB normally has a pretty good handle on emerging Asia, which is an extremely tough region to track. Its network of field offices give it boots on the ground in an island-dotted region. The bank says there's plenty of room for its estimates to go lower, given disruption in the region from the US$2.0 trillion to US$4.1 trillion in global losses due to Covid-19. That's shaving 2.3% to 4.8% off the world's entire GDP.
I think of Indonesia as a kind of "Asian Brazil." It's blessed naturally, and has an emerging middle class. At the same time, it has not quite ever lived up to its potential.
Indonesia used to be the only Asian member of OPEC, joining far back in 1962, two years after its foundation. But it suspended its membership in 2009 after it became a net oil importer, which is against the cartel's rules, and after a brief reactivation left again in 2016 to avoid restrictions on its own domestic production.
Its wells in western Indonesia are drying up, and produce half their peak in the mid-1990s. So it must depend on other raw materials, particularly coal, palm oil, rubber and gas. Let's face it, commodities are getting crushed.
So it's going to need international demand for its key products to recover. The government has projected scenarios of the rupiah falling to as low as 20,000 to the U.S. dollar, and the economy contracting by 0.4%.
Central bank governor Perry Warjiyo says those are levels to be prevented, not targets, predicting the "undervalued" currency will strengthen toward 15,000 to the U.S. dollar by year end. We shall see. I have a feeling that the Indonesian economy, stock market and currency have plenty of room to weaken further yet.