
What have changed prior to Rupiah recent slump?
What triggered recent Rupiah depreciation? External factors like trade war, Fed rate hikes and currency crises in Venezuela, Argentina and Turkey. I couldn’t agree more with that. But what made Rupiah depreciation deeper than some other currencies? Let’s see what have changed in the last 4 years.
Jokowi regime came with a reform agenda mainly in infrastructure development. The initial steps seemed bold, reallocate energy subsidies to build infrastructure, both soft and hard, and to provide another source of income, tax intensification and extensification was also implemented (remember tax amnesty?). Both policies, nevertheless, came at the cost of household purchasing power. But it’s good since it also helped the rabalancing of CAD.
After one year, Rupiah turned more stable and not long after that S&P, Fitch and Moody’s raised Indonesia sovereign rating upgrade. Although in general depreciation trend of Rupiah stayed amid current account deficit and Fed’s hawkish moves, it became less steep.
But as international oil price started to increase in 2016, domeatic fuel price has remained unchanged. That means government must have been paying the spread. Even though a part of energy subsidies is covered by Pertamina, it finally hit back the state budget — in the last 2 years the dividens from Pertamina to the government have declined.
Fuel consumption also failed to adjust lower and with higher oil price, oil imports jumped pushing back CAD closer to an alarming level.
So the government has done something exactly the opposite of what they did before that led to stable Rupiah!