Here’s where Indonesia is weak. The 8 per cent decline in the rupiah’s value against the US dollar in Mr Prabowo’s still-young term is not a sign of confidence.
The decline in the rupiah’s value is partly driven by external factors, but much of it reflects scepticism about Mr Prabowo’s ability to balance the books while pursuing a spending-heavy economic and social agenda. Without such confidence, redenomination can cause a further fall in the value of the currency and stoke inflation, rather than tame it.
Indonesia can also learn from the free-meals programme, where intentions are right, but execution is patchy. To redenominate the rupiah, patchy just won’t cut it.
For it to be a success, first, there must be extensive public education to build trust with consumers and investors. A currency is not just a store of value but also a gauge of confidence.
Second, Bank Indonesia will need plenty of lead time to prepare – from printing new bank notes to adjusting financial settlement mechanisms – before it can start the process. Türkiye took three years to fully transition to the new lira; Indonesia won’t be much different.
With so much riding on what superficially appears to be a matter of a few zeros, Indonesia is right to delay the redenomination. Indonesians are already skilled in arithmetic gymnastics; they can wait a bit longer to cast a few zeros aside.
Hasan Jafri is a Singaporean analyst who advises clients on political and policy risk. He writes a monthly column for CNA, published every third Wednesday.
https://www.channelnewsasia.com/commentary/indonesia-rupiah-redenomination-currency-value-inflation-prabowo-5474131
