Coming to naught –
someday
 |
| Roadside seller of new banknotes for Idul Fitri celebrations. The price is ten per cent above face value. |
It was clearly a bargain – and the alert shopper was shouldering
her bag into the ready-to-buy position; an elegant batik blouse for Rp 499 in
Indonesia’s popular Matahari shop. The well-established outlet is known for discounting
but this was too good to miss.
The target moment was brief. One step closer and another
symbol became clear – the letter ‘k’, short for ‘kilo’.
The middle-class department store and other big retailers can
use this pricing because the clientele is financially literate. Buyers understand that the basic monetary unit
in Southeast Asia’s largest economy is not one rupiah – but a thousand rupiah
and has been for many years.
So why not stop playing around and officially scissor the
last three zeroes? It’s called
redenomination and the term is as awkward to say as the currency is to handle. So Bank Indonesia and the Government are yet
again pushing the idea into the nation’s conversation as a way into its wallets.
With the exchange rate stubbornly stuck above Rp 13,000 to
the US dollar, a thousand rupiah equals between seven and eight US cents. That’s enough to buy one cigarette.
Rp 1,000, 500, 200 and 100 coins are getting rare. The
smaller ones are more likely to be pocketed in taped bundles to make Rp 1,000.
The largest note is Rp 100,000 (US $7.50). Carrying rupiah is burdensome compared to the
Malaysian ringgit (4.3 to one greenback) and the Singapore dollar (72 cents). Western
holidaymakers in Bali filling their bags at ATMs dub the rupiah ‘funny money’
and assume it means the economy is in strife.
It’s less amusing in Vietnam where carrying away 2.3 million
dong after exchanging one Benjamin (US $100 note) needs a backpack.
“We’re not there yet but the arguments for redenomination of
the rupiah are compelling,” Professor Candra Fajri Ananda (right) told Strategic Review.
“I think it would be good for the country and the economy. It
will stimulate growth and lift our international status. But I also know it
will take time and a massive public awareness campaign.
“Redenomination is hard to say and often confused with
devaluation (imposing an exchange rate) which is entirely different. Indonesia is still a largely cash economy and
most people don’t use banks.” Surveys show
there are only 60 million accounts in Indonesia.
Ananda, 43, Dean of
Economics and Business at Malang’s Brawijaya University has been appointed to work
with the National Parliament’s Committee 11.
This handles Finance, the National Development Planning Board, banks and
other financial institutions. He takes up his three-year posting this month
[June].
The need for redenomination is widely accepted by professionals
in business. Though the logic for
change is clear, the execution could be catastrophic if mishandled.
India has given skittish
politicians a sobering example of how good ideas crumble when governments
meddle with money: Last year PM Narendra Modi ordered banks to exchange 500 (US
$7.50) and 1,000-rupee notes (US $15) for new bills in a bid to stop hoarding
and tax evasion.
The New
York Times reported the decision threw ‘the economy into turmoil, with many
millions of people forced to line up at banks to deposit or exchange their old
bills’.
In two years Indonesia will elect a new leader through
popular vote. If he nominates the last thing incumbent President Joko ‘Jokowi’
Widodo wants is a loss of confidence from electors who might think juggling the
rupiah a trick to clip their salaries and savings.
Jokowi has publicly endorsed the latest plan to delete
zeroes and says he wants it to be a priority in this year’s Prolegnas (National Legislation Program).
However should he win in 2019 he’s built in a personal
escape hatch by suggesting a seven year education campaign.
This will take the nation up to 2024 – an election year when
the impact of redenomination will be someone else’s hurdle. Indonesian presidents are restricted to two
five-year terms.
US political scientist Professor Layna Mosley has studied
redenomination and found ‘government concerns about credibility and the effect
of currencies on national identity’ strong factors in deciding whether to cut
the zeros. In brief it’s politics and emotion rather than economics.
About 40 million (15 per cent) of the Indonesian population
is considered poor by the World Bank. Numeracy levels are low. According to
UNICEF ‘a significant number of children stop their education after completing
primary school. One in ten children who should be in classes at junior
secondary level are not enrolled.’
Distrust of authority is widespread along with conspiracy
theories. Persuading all citizens to
understand and accept currency changes would require a massive investment in building
community acceptance.
The present enthusiasm for change is an echo from past
calls. In 2010 and again three years later Bank Indonesia was assertive. So was
Finance Minister Agus Marto Martowardojo.
He was reported as saying:
"We have now achieved a good level of national economic
development but it is not yet supported by an efficient currency. The rupiah
must now be redenominated as it has become inefficient.”
The inefficiency remains. Nothing happened because the
economy was suddenly said to be unstable.
Ananda claims that’s not an issue now as inflation (currently 4.17 per
cent) has been steady for several years.
“Financial illiteracy is a problem though the situation is improving,”
said Ananda. “As part of the change we’d need an authority where people could
complain and get action if traders tried to exploit confusion.”
As no budget has been announced to run an awareness program
Indonesian shoppers will continue putting up with spending half a million
rupiah for a batik blouse – though still a good buy at US $37.50.
##
First published in Strategic Review 6 June 2017: http://www.sr-indonesia.com/web-exclusives/view/coming-to-naught-someday
