TO IDENTIFY SIGNALS OF ECONOMIC CRISIS

Today some sort of polemic was going on whether Indonesia had entered the state of crisis or not. By theory monetary crisis was indicated by depreciation of Rupiah value against USD, negative Balance of Payment, letter of Credit of national banks not accepted by foreign banks and increasing amount of money in circulation.

In monetary crisis, normally accompanied by crisis in banking, marked by the following indicators: there were banks which failed, BI rate increasing within a short time, fixed deposit interest of banks also rising drastically, banks unable to fulfill obligations to creditors.

Accumulated monetary crisis and crisis in the banking sector boiled down in economic crisis, as signified by the following: credit interest rate extremely high in respond to increased SBI or BI rate, stagnation happening in the real sector, mass dismissals happening the real sector.

To refer to the above definitions as benchmark, it might be concluded that Indonesia as today no in the state of crisis. However high alert by the Government and all authorities and regulators were still necessary. In short, all parties must not be on the off-guard.

Signs of economic weakening was beginning to be felt in 2012 last when economic growth fell to the level of 6.23%, lower than that of the previous year at 6.5%. in the past 2 years, economic growth was still at above 6%, perhaps only outsmarted by China [8.5%] and India [7%].

World’s compliment was addressed to three countries which escaped crisis that smashed the world, namely China, India and Indonesia. The reason was that the three countries posted notably high growth percentage amidst the threat of world’s crisis in 2008. Investors from developing nations flew in to Indonesia as Indonesia was rated as the safest place to invest amidst grave economic condition in Europe and America.

Since 2008, national economic stability had been well secured, with national economic growth rate consistently managed at above 6%. At the Stock Hall, index of IHSG was once something to be proud of, touching the level of above 5,000.

Unfortunately, lately Indonesia’s fundamental economy had to face great challenges. The negative sentiment came from economic uncertainty of the world and monetary policy in the USA related to Quantitative Easing part III. At home, inflation soared up in line with oil price increase on June 2 last which jacked upon inflation of July by 3.29%, the highest since 2008. National economic growth rate was also corrected to below 6%, to be exact 5.8% in Semester I 2013.

Lately, IHSG index was shaken, nose diving way below its highest level, while foreign capital was on the walk out in large scale. Acts of selling spread out only to drop premium shares down. Rupiah was drawn downward. Rupiah value collapsed helplessly against strengthening USD.

Some circles were worries about the present national economic condition. Downfall of Rupiah value reminded people of the bad times of 1998. It was known as the darkest hour in the history of national economy. Many economic observers stated that crisis was always possible if the Government was not on the alert.

The Government was compact to cast aside the notion that the condition of today was the same as that of 1998. So far the condition of Indonesia’s fundamental economy today was by far better than 1998. Even to compare against 2008, what was happening today was safely under control.

Coordinating Minister Hatta Rajasa and the Financial Service Authority [OJK] were also compact in saying that the present condition was far from the danger of crisis. the same was disclosed by Finance Minister Chatib basri that compared to 1998, the condition then was by far more grave than the present condition. So the year 2013 was not comparable to 1998 or 2008.

The question lingered on, are we now on the brink of crisis as in 1998 and 2008? Some indicators could serve as reference to see the similarity of the present condition with that of 1998 or 2008.

Firstly, Rupiah exchange rate value weakened. In 1998 Rupiah was on a free fall to Rp 17,000 per USD. It was a steep downfall against the pre-crisis moment of 1997 when Rupiah exchange rate value was Rp 4,850 per USD. In mid September 2008, severe condition effect on Rupiah. Rupiah value noise-dived to Rp 11,711 per USD in November 2008 which was an extremely deep depreciation of Rupiah, because only a month before Rupiah was at Rp 10,048. Per USD.

In August 22, 2013 last Rupiah value slumped toRp 11,000.- per USD and was predicted to sink even deeper in line with the QE part three to be exercised by the US Central Bank. Rumors spread out that the QE 3 policy would be stopped by stages in line with bettered US economy.

Secondly, IHSG index sank quite deeply. On the brink of economic crisis of 1998, the stock market was shaken. IHSG fell to its lowest point: 292,12 point in 1998 against Semester I 1997. Dow fall of IHSG was also happening today. OJK noted that  in spite of falling, the slump was only around 4%-5%. According to OJK, if IHSG fell by 10% in 3 consecutive days, only then it could be defined as crisis.

On August 19, 2013 IHSG was closed to weaken by 255.14 points or 5.58% to the level of 4,313; while on August 20, IHSG was again closed to drop by 138.54 points to the level of 4,174 but on August 21 again IHSG moved up to 43.47 points or 1.04% to become 4,218. Lastly during transaction on August 22, IHSG again weakened 1.19% to the level of 4,168.

Thirdly Non Performing Loan was at large, soaring up sky high in the crisis of 1998. NPL was posted at 30%. Today in 2013, NPL was still below 5%. Banks were ask to refrain from jacking up credit amidst economic slowdown. If banks persisted to grow by jacking up credit, it might trigger another problem, i.e. NPL.

Fourthly, high inflation pressures during the crisis of 1998 was extremely high: inflation in 1998/1999 was posted at 45.9%, while inflation during crisis of 2008 came to 12.4% in September, being jacked up by increasing world’s oil price which led to Government’s policy to increase oil price.

The same condition was happening today in this year 2013: increased oil price triggered notably high inflation.

The Central Statistics Board [BPS] predicted inflation of 2013 to reach 3.29%. inflation through January-July soared above 6.75% with yearly inflation [July 2013 against July 2013] at 8.61%. Yearly inflation was posted as highest since 2009. As with monthly inflation, July was the highest since 1998. Inflation still continued in August at 1.12% resulting in calendar inflation at 7.94% [ytd] and annual inflation of 8.79% [y o y].

Fifthly banks were having liquidity problem. The banking sector was smashed by crisis in 1998. Consumer’s trust in banks declined. Liquidation of banks without considering customers’ panic was the beginning of unrest in the banking sector when crisis came.

Customers panic had drained bank’s financing resources. Banks liquidity dried up, forcing BI to inject liquidity facility. Today the condition was nit as bad as 1998. Bank’s liquidity was more influenced by BI’s policy to lower LDR from the previous 100% to 92%. This would force banks to maintain their liquidity with the consequences of fighting for people’s limited fund.

From the above picture it might be concluded that the condition of today was for from economic crisis. one of the indicators was that the business world was still operating, bank’s credit still extended, IHSG showing upturn, and Rupiah beginning to strengthen.

All were the direct impact of BI’s policy and the Government Four Policy Package. Apparently indicators of macro economy was getting better as the National Crisis Protocol was set ready to prepare for the worst.

 

Business News - September 6, 2013