Jakarta at night (source of picture: Wikimedia)
By John Richardson
THE blog first visited Indonesia in October 1997, shortly after the onset of the Asian Financial Crisis, and was amazed to think that only a few months earlier, the media was talking of the inevitable rise of Indonesia’s middle class, which was said to be snapping-up BMWs and Mercedes by the show-room full.
On that first visit, instead of noticing high-end auto dealerships, glitzy designer shops and flash hotels (we stayed in one, of course, because we are amongst the world’s lucky people), what we saw was a huge gap between the haves and the have nots (we visited a rubbish tip where homeless children scavenged for scrap plastic). We also heard frequent complaints about lousy infrastructure, rampant corruption and rising hostility towards foreign direct investment. The more that things change, the more they stay the same?.
To a large degree, though, we had been taught to look for the negatives rather than the positives during our first visit because of the huge shift in investor sentiment. We might have been suckered into the downside, just as much as all the “naïve fools” [other people’s words, not ours} had bought into the upside a few months earlier. But in our defence, it did take Indonesia the best part of a decade to get over the impact of the 1997-1998 Asian Financial Crisis!
Turn the clock forward 16 years and the $64,000 question, as Indonesia faces a new economic crisis, is: “Was it that good just a few months ago, before investors once again took panic, and is it that bad now?”
Firstly, to try and find the answer, you have to remember the motives of who you are talking to. Thus, in 1997 we were somewhat sceptical when a petrochemicals industry executive insisted that his company’s cracker project remained on track because Indonesia was “economically and politically sound”. This particular executive had tied his career to the success of that project. As we all know, the following year saw the collapse of the Suharto government and the beginning of the long period of poor economic growth. The four cracker projects planned for Indonesia in 1996 turned into no projects.
And so when investors today claim that the rupiah and the Indonesian stock market are close to bottoming-out, you have to question whether they are merely trying to protect positions.
Equally, what are the motives of all the doomsayers?
And so, sorry to disappoint, but there is no easy answer to our $64,000 question – you will just have to go out there and sweat out the answer yourselves.
Detailed, comprehensive and realistic scenario planning is now essential to prepare for a wide range of outcomes in Indonesia, India and other Asian countries– assuming that your chemicals company hasn’t already carried out this type of research. We continue to worry that many companies haven’t done this kind of planning.
The risks were evident in May and in June that we could be where we are now.
Now we think that there is a very real chance of a Southeast Asian economic crisis on the scale of 1997-1998.