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Indonesian rupiah slumps to four year low
Indonesia's economy suffered a rare setback this week as the rupiah slumped and investors deserted the country.

Investors are leaving riskier assets with concerns that economic stimulus programs in the US and Japan are coming to an end.

Jim Middleton speaks with Indonesia's Vice President Boediono, who also served as Finance Minister and Deputy Governor of Bank Indonesia.
JIM MIDDLETON, PRESENTER: Indonesia's economy has suffered a rare setback in recent weeks; the rupiah has slumped; investors are deserting the country, forcing the central bank to raise interest rates.

Investors have been dumping riskier assets across the world as concern increases that economic stimulus programs in the United States and Japan are coming to an end.

But government policies have also come under attack.

Indonesia's vice-president Boediono has also served as deputy governor of Bank Indonesia and as finance minister.

I spoke to him in his Jakarta office.

Mr Vice President, thank you very much for agreeing to talk us to.


JIM MIDDLETON: First if I may to the immediate economic developments surrounding Indonesia and the region, the rupiah reaching that confidence level of 10,000, central bank intervention, falling stock markets through the Asia Pacific. How worrying is all this for Indonesia's economic outlook which has been so good for so long?

BOEDIONO: Well I hope it is going to be just an aberration because it is not specifically an event in Indonesia, it affects a number of countries almost equally, at least for some. So I think it is a kind of, hopefully, it's a kind of just one or twice event that will somehow going back to normal.

JIM MIDDLETON: There are international developments which are affecting what’s going on: slowing growth in China, questions over whether the Bank of Japan and indeed the US Federal Reserve will continue quantitative easing. But there are also specific domestic developments in relation to questions over your fuel subsidies, for example, which are worrying international investors, and contributing to their retreating confidence.

Are you able to assure them that there will be concrete developments on that front that will give them reasons to restore their confidence?

BOEDIONO: Yes. We are fully aware about the problem that this issue of fuel subsidy has actually develop a problem in our fiscal as well as our balance of payment, and the kind of (inaudible) deficit we are trying to overcome now. And I can give you assurance that action will be done in time.

JIM MIDDLETON: I was intrigued that in recent days you found it necessary to deliver a message in support of an open Indonesian economy. Does this suggest that there is a danger of your country retreating into a kind of populous protectionism?

BOEDIONO: Well, I would not worry too much about this kind of trend, possible trend. You know Indonesia is a country that is trying to be a free trader actually in a sense. We just came up all these long shorelines. And we have been positioning ourselves ever since the new order, Suharto, that we are in favour of more open trade and economic relation among countries. And there have been some discussion, but in this time of crisis, what do you do on top of this?

But I think this is just, what do you call, things that people will talk in any country, not in Indonesia, it's Indonesia.

JIM MIDDLETON: It certainly happens in Australia, there is no doubt about that too. But why do some Indonesians, do you think, not understand the benefits of foreign investment? Is it because those benefits are not trickling down to the less well off, for example?

BOEDIONO: I think it's very clear that the foreign investment does have employed a lot of labour, and I think that that's been proven for many years. But in some areas, for instance in the mining and oil and gas, of course this effect has not been so visible by the public. So I think the best way in this kind of area is for the government to capture the surplus or whatever, the economic surplus, from this kind of capital intensive investment and then channel that through our budget.

JIM MIDDLETON: Countries around the region, in fact cities around the region, are all having troubles managing the vast boost in traffic that there has been in recent years as they have all become more prosperous. Jakarta is no exception. But do people understand that without foreign capital, that without foreign investment, they cannot have the infrastructure, the services that they need to make their lives better?

BOEDIONO: I think most of the people understand that. I think it's a matter of trying to repeat this message to them. And everybody knows that our budget is just hardly enough to finance any large scale infrastructure.

JIM MIDDLETON: What would you say to the Indonesian Chamber of Commerce, who say, ‘look, just get rid of the fuel subsidy entirely.’ It costs $20 billion a year, and why not divert that money into more useful projects that will genuinely assist people who need it, whether it be health services, whether it be education, whether it be roads, whether it be energy production, rather than this very wasteful way of subsidising, in some cases, people who don't need it and which only provides the opportunity for corruption?

BOEDIONO: Yes, I think many people agree with that.

JIM MIDDLETON: What about you?

BOEDIONO: Including myself.


BOEDIONO: Yes, certainly, of course. But removing altogether subsidies is just not realistic, you know.

I think people need some kind of subsidies, even fuel subsidies. We have to think one way or another how to get rid gradually. But certainly I don't think that we can do that in one or two years.

JIM MIDDLETON: So can you do it by carrots and sticks? In other words, by reducing the subsidy on the one hand but returning the money to the people in a more effective way?

BOEDIONO: That is what we are trying to do, we are moving forward step by step with that kind of...

JIM MIDDLETON: We might return to some more economic questions in detail about Indonesia in a momen,t but I wonder if I could ask you about the bilateral relationship with Australia.

Indonesia and Australia are very close neighbours indeed there are some Australian politicians who say that it is the most important relationship that Australia has. But does Australia in Indonesian eyes place too much emphasis on issues like meat quotas, asylum seekers, and not enough on deepening the broader relationship?

BOEDIONO: Well, we are trying to be next door neighbours, so I think the most basic most important thing for two neighbours, next door neighbours would be trust; to build trust between the two.

And I think that is key. Mutual understanding, mutual respect, mutual, what you call, the understanding about what are the most crucial things, issues, from the point of view of the other the neighbour and so on. Such as territorial sovereignty, for instance, that is so crucial. I think it is misunderstood.

JIM MIDDLETON: You're talking about West Papua?

BOEDIONO: I am talking about in general.

JIM MIDDLETON: So does that also then apply to the question which preoccupies Australians much more than it does Indonesians, which is the issue of asylum seekers? Your ambassador in Canberra said recently that Indonesia would not accept a policy of turning back boat loads of asylum seekers. Why do you think Australian politicians keep on saying this, even though your government at many levels has been telling Australia for years that this is not possible?

BOEDIONO: Well, I don't know why. I think we have made our position quite clear and we would certainly be willing to cooperate in whatever, given all this basic position. I think we are open, very open to cooperation with Australia.

JIM MIDDLETON: But that stops at territorial integrity, and Indonesia will not accept Australian vessels trying to return asylum seekers to Indonesian ports?

BOEDIONO: Well, there's the position at the moment.

JIM MIDDLETON: What do you think would happen to relations between Jakarta and Canberra if an Australian government did try to have boat loads of asylum seekers returned to Indonesian territory?

BOEDIONO: Well I hope we should talk about that before it happened.

JIM MIDDLETON: It has been a delight talking to you, Mr Vice President. Thank you very much.

BOEDIONO: Thank you, Jim. All the best for you.
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