Rupiah May Go on a Diet

The rupiah as we know it may be history in ten years. What, you say, how can that be. Don’t panic; no need to liquidate positions. There is no drastic devaluation coming. Just gaze wistfully at those many zeroes on bank notes and prepare to say goodbye. If a Bank Indonesia plan is adopted (and I emphasize the word if) we will all be making new, simpler calculations. You guessed it: the rupiah is being prepared for a “re-denomination”. After a 10 year phase-in period currency notes would not have the zeroes.

"Re-denomination shall be in no way detrimental to the public as it differs from previous currency reforms that reduced the exchange value of the currency. Redenomination does not affect the value of money against goods (purchase power), several zeros are simply omitted from the current denominations," clarified the new Governor of BI, Darmin Nasution.

Unlike the two other times in Indonesia’s history when the currency was redenominated to cope with high inflation this one would reflect the growing strength and stability of Indonesia’s economy and would simplify transactions. Bank Indonesia spokesmen indicated that another aim is to help in the preparation of an ASEAN Economic Community. So far local businesses and economists have had a positive reaction to the announcement even though they acknowledge there will be be costs. Several leading business leaders speculated that the change (basically shifting the decimal place) will create a more positive perception of value. However, the markets and some members of the public had an initial negative reaction. One group that will immediately cheer this move is the tourist, usually bewildered at money changing windows and the cash register.

A Rising Yuan: Good for Indonesia

China’s recent decision to allow its currency to float upward against the US dollar should be good news for Indonesia. Of course, the technical aspects of the exchange rate flexibility remain to be seen but if a measurable appreciation occurs, Indonesia stands to benefit. The cost of Chinese goods –already affected by rising labor costs—should theoretically rise, making Indonesian products more competitive. Companies that already had a diversified approach to sourcing in Asia now see the wisdom of their strategy and those that have not should be giving Indonesia a very close look, especially its export processing zones.

A rising yuan (even if done gradually) will also boost Chinese purchasing power, making it easier for Indonesia to export commodities and other goods to China.

Indonesia can capitalize on this development by reducing its many hidden costs and barriers to doing business, liberalizing its investment and regulatory climate, professionalizing its commercial legal system and bureaucracy, and engaging in focused promotion efforts.

Now Srikandi Can Laugh

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Indonesia’s departing Finance Minister, Sri Mulyani, has been speaking at gatherings held in her honor. As usual she does not speak indirectly, a style preferred by many of her countrymen. As the Jakarta Post reported: “During her general lecture on public policy and ethics in Jakarta on Tuesday, Mulyani, who is known for never addressing politics in her speeches, said a ‘political marriage’ (alluding to the President and Golkar Chairman, Aburizal Bakrie) had cost her the finance minister position. She said she could no longer exist in a political system in which ethics had become an exotic virtue. She said she was no longer wanted.”

Curiously, some members of the Golkar , many of whom directly accused her of illegally presiding over a bank bailout, complained that she should have been more grateful, diplomatic, and “less angry”. After all, in the words of one of them, she had been “allowed a soft landing”. (as opposed to a criminal prosecution ?) This not-so-subtle form of intimidation characterized Golkar’s approach during the administration of President Suharto.

"Corruption is everywhere and it depends on the (leaders') response to eradicate it," Indrawati said in a speech to university students Wednesday. "If the leaders are clean, others will follow."

Another party, PDI-P, applauded Sri’s statement and hoped for more to be revealed about her exit.

The Post also reported that at the University of Indonesia alumni event, Mulyani’s friend Rhenald Kasali, the MC at the event, invited Hariono, a fellow alumni, to tell the tale of Wayang Orang, a traditional Javanese play. Hariono told a story about a war in which Srikandi, a female warrior, was forced to withdraw from battle. “Where? To Washington,” Hariono said.

Bidding farewell to fellow alumni at the University of Indonesia’s Faculty of Economics, where she obtained her undergraduate degree, Mulyani said “Today is perhaps the first day in six years that I have been able to laugh full heartily,” she said.

Sri Mulyani Resigns

Indonesia's Finance Minister, Sri Mulyani, has resigned to take up a post at the World Bank as a Managing Director, June 1. A successor has yet to be named. Certainly, this able economist/reformer has many reasons to leave Indonesia's government, given the unending political efforts to blame the Bank Century debacle on her as well as the "push back" from her campaign to reform her corruption laden customs and tax offices. I suppose there are sighs of relief in many companies and within certain government offices but I hope the President appoints someone who will keep up the pressure. It would be natural to expect international investors to pause in their zeal for Indonesia debt or equity. We will all be waiting to see how President Yudhoyono plays his next move. Meanwhile, we have to acknowledge the courage and fortitude of one of Indonesia's most able public servants and wish her well in her new life here in the US. Mulyani will be part of World Bank President Robert Zoellick's inner circle.

Accepting the appointment Ms. Indrawati said: “It is a great honor for me and also for my country to have this opportunity to contribute to the very important mission of the Bank in changing the world."

“Ms. Indrawati brings a unique set of skills and experience to the World Bank Group, from the vantage point of an advancing Middle-Income country that still faces significant challenges of poverty. She has received global recognition for her success in combating corruption and strengthening good governance,” noted Mr. Zoellick. “She has been a leader in the developing world on climate change, and active in the international arena through the G-20, APEC, ASEAN and other groups.”

Investing in Indonesia: The Time is Now

Cameron Hume, US Ambassador to Indonesia, recently wrote what I consider to be one of the most bullish Op-Ed pieces on investment in Indonesia by a senior US official in the last 12 years. Hume lists a diverse set of positive indicators including:

• OECD’s recent upgrade of Indonesia’s risk rating now allows US EX-IM Bank to reduce lending costs 20-25%
• The OPIC agreement recently signed with Indonesia makes $1.4 billion available for risk insurance and investment
• Geothermal and other clean energy deals are at the top of the list for investment and trade; Indonesia is streamlining its regulatory framework
• Hollywood is no longer avoiding Indonesia’s as a site location- Julia Roberts’ next film was shot in Bali and “Survivor” may shoot in Indonesia next year.
• The government is offering up to a 2/3 stake in $140 billion of key infrastructure projects to the private sector
  

We know that many impediments in key sectors still hamper US direct investment but the Ambassador (who is close to much of the action) senses that real change is underway and he doesn’t want US firms to miss the train. The op-ed, direct in its appeal, can be downloaded at http://www.aiccusa.org/humeoped.pdf. Something to show those “naysayers”.

Return of the Big Emerging Market and Tied Aid ?

In 1990 George H. Bush’s Administration provided mixed credit support to A T & T’s bid on the second digital switch for Jakarta, beating out Siemens’ heavily subsidized bid. The US finally did what it had refused to do during most of its history and especially during the laissez faire, no tied-aid Reagan years: mix government grants and loans to support a private company trying to do business in a foreign country. Surveys by AICC and AMCHAM had determined that not only were US companies shut out of the state-dominated Indonesian telecom market, they wouldn’t even bid. Because the US has no state-owned telecoms and utilities (unlike Europe, Japan and Indonesia ) to rally around getting our technology to be competitive in Indonesia has been a major challenge. In the 1990‘s President Clinton’s Commerce Secretary, Ron Brown, tapped Indonesia as a BEM (big emerging market) and developed more of a mixed credit approach to supporting US exports. A “war chest” and a Trade Promotion Coordinating Council (TPCC, still in existence) was created to package grants and low interest Ex-Im Bank loans to support US bids government tenders.

I was in Washington last week and learned that the US intends to plan a series of trade missions to Indonesia in the months ahead, starting with a clean energy business development mission to Indonesia and China led by Secretary of Commerce, Gary Locke. I had a very productive meeting with an informal interagency group organized by the US Trade Representative’s office. Not only is Indonesia in President Obama’s vision because of his upcoming June trip, but also his National Export Initiative, whose ambitious goal is to double exports within 5 years. President Obama’s March 11 executive order on exports looks very much like a re-statement of the BEM program, but with an emphasis on small and medium sized companies. All well and good but in Indonesia its often big projects done by big firms.

Just last week, China announced an offer of $2 billion of aid to Indonesia to support infrastructure projects tied to the purchase of Chinese goods, a clear shot across the US bow. To even come close to Obama’s goal in a country such as Indonesia will require a strong evaluation of the competitive position of US companies and, I would submit, a judicious use of grants and loans to large as well as small and medium firms. Yes, we do have a low interest environment that helps in financing but Indonesia may want terms such as it used in the 1990’s, 5 year grace periods and 25 year loans, terms that would be very difficult for most commercial lenders. So, its great to organize trade missions but do we have enough arrows in our quiver ?

Return of the Big Emerging Market and Tied Aid ?

In 1990 George H. Bush’s Administration provided mixed credit support to A T & T’s bid on the second digital switch for Jakarta, beating out Siemens’ heavily subsidized bid. The US finally did what it had refused to do during most of its history and especially during the laissez faire, no tied-aid Reagan years: mix government grants and loans to support a private company trying to do business in a foreign country. Surveys by AICC and AMCHAM had determined that not only were US companies shut out of the state-dominated Indonesian telecom market, they wouldn’t even bid. Because the US has no state-owned telecoms and utilities (unlike Europe, Japan and Indonesia ) to rally around getting our technology to be competitive in Indonesia has been a major challenge. In the 1990‘s President Clinton’s Commerce Secretary, Ron Brown, tapped Indonesia as a BEM (big emerging market) and developed more of a mixed credit approach to supporting US exports. A “war chest” and a Trade Promotion Coordinating Council (TPCC, still in existence) was created to package grants and low interest Ex-Im Bank loans to support US bids government tenders.

I was in Washington last week and learned that the US intends to plan a series of trade missions to Indonesia in the months ahead, starting with a clean energy business development mission to Indonesia and China led by Secretary of Commerce, Gary Locke. I had a very productive meeting with an informal interagency group organized by the US Trade Representative’s office. Not only is Indonesia in President Obama’s vision because of his upcoming June trip, but also his National Export Initiative, whose ambitious goal is to double exports within 5 years. President Obama’s March 11 executive order on exports looks very much like a re-statement of the BEM program, but with an emphasis on small and medium sized companies. All well and good but in Indonesia its often big projects done by big firms.

Just last week, China announced an offer of $2 billion of aid to Indonesia to support infrastructure projects tied to the purchase of Chinese goods, a clear shot across the US bow. To even come close to Obama’s goal in a country such as Indonesia will require a strong evaluation of the competitive position of US companies and, I would submit, a judicious use of grants and loans to large as well as small and medium firms. Yes, we do have a low interest environment that helps in financing but Indonesia may want terms such as it used in the 1990’s, 5 year grace periods and 25 year loans, terms that would be very difficult for most commercial lenders. So, its great to organize trade missions but do we have enough arrows in our quiver ?