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Free fall in Indonesia
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January 22, 1998: 10:09 a.m. ET
Rupiah keeps falling, corporations go under and now millions may lose jobs
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NEW YORK (CNNfn) - The Indonesian rupiah plunged to record lows Thursday but that may be the least of the worries of the country's citizens, who are staring at the face of massive layoffs in a country that seems to keep falling down.
The rupiah stood at 12,000/12,500 to the U.S. dollar in Asian trading Thursday, but had lost even more value during the day and, at one point, was at 15,000 to the dollar.. Only a central bank intervention helped to revive it.
That will be of little comfort to rupiah traders. The currency has lost 84 percent of its value since last July, when Asia's currency crisis set off the region's economic problems.
The effects of the crisis are now starting to trickle down to the lives of ordinary Indonesians.
Initially, Indonesia was dealing with the country's massive overseas debt, estimated at $140 billion. of which corporate debt is estimated at about $66 billion. So far, however, the government has been steadfast in saying it would not bail out any companies.
Companies will then either be forced to fold or make job cuts. "The present unemployment figure stands at 2.7 million as of January," said Sutinkno, a spokesman for the country's Manpower Ministry.
"This is expected to increase this year because at least one million people will lose their jobs in the wake of the crisis." Even that figure may be low, according to Indonesian labor union officials, who estimate the number could rise as high as 10 million.
Indonesia negotiated a $43 billion bailout package with the International Monetary Fund but the first round of payments have not seemed to have any effect on the country's finances.
In the midst of this storm stands Indonesian President Suharto, in office for 32 years. He rejected last week calls to retire from those who believe a new leader is necessary to guide the country out of its troubles.
Larger repercussions
Indonesia's problems would be little more than a domestic matter if it weren't for the fact that the country, the world's fourth most populous, is representative of the region's troubles in general. Thailand, South Korea, and the Philippines have also watched as their currencies have slid.
Peter Churchouse, managing director at Morgan Stanley Asia, said that the effects of Indonesia on Southeast Asia are not overstated.
"There's a growing concern that Indonesia is going to unhinge here both economically and, potentially, politically and that can be expected to have a knockdown effect around the region," he said.
Indonesia also has repercussions across continents. On many occasions, a drop in Indonesia's currency and markets has precipitated a fall in Southeast Asian markets in general, along with Europe and the United States.
U.S. companies have felt the loss of Southeast Asian buying enthusiasm as well. The region was originally an aggressive buyer of U.S. goods, particularly technology offerings like computer, software, and telecommunications products.
Even software leader Microsoft Corp. which released better-than-expected quarterly earnings Wednesday, said it couldn't escape the region's troubles. Microsoft predicted that its Asian revenues, which make up 13 percent of the company's overall results, could be as much as $300 million lower over the next two quarters than they had originally planned.
On Tuesday, IBM Corp. also pointed toward Asia when discussing its fourth quarter earnings problems and said that earnings in the first quarter could be anywhere from 10 to 15 cents off 1997 levels due, in part, to problems in Southeast Asia.
Looking for relief
Officials in both Southeast Asia and the rest of the world have been working feverishly to try and resolve some of the region's difficulties.
Southeast Asian countries like Thailand and Indonesia began to chafe under the restrictions they originally agreed to as part of their IMF packages, with Indonesia launching the most direct challenge. But now, both countries seemed to have accepted that they must take the bitter medicine to cure their economies.
"There's a very definite sense that the momentum has changed direction," IMF First Deputy Managing Director Stanley Fischer.
South Korean and Thai officials have been meeting this week in the United States with both the IMF and other global lenders to find a longer-term solution to the region's short-term debt burden.
The United States looks to become more involved in figuring out a solution as it now begins to hit home, said Treasury Secretary Robert Rubin.
"The risks in this crisis are not just confined to the Asian countries now most directly involved. Roughly 40 percent of our exports have been going to emerging markets around the globe," he said.
"If the crisis were to spread more broadly to other emerging markets, then the impact on American workers and businesses could be much greater. Simply put, we cannot afford to stand back and gamble that the crisis will resolve itself."
-- from staff and wire reports
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