(Bloomberg Opinion) -- In a matter of weeks, the world’s fourth-most populous nation went from reporting zero coronavirus cases to having the highest death toll in Southeast Asia. Now its currency is tumbling, growth forecasts are buckling, the capital is under a state of emergency, and an archipelago of 18,000 islands has effectively sealed its borders.
With a global recession in the cards, it's hard to see how Indonesia's economy moves forward. Finance Minister Sri Mulyani Indrawati may have been optimistic when she said Friday the expansion could slip to zero. The rupiah has shed about 13% this month, more than twice the decline of the South Korean won and Malaysian ringgit. More than $5 billion has fled the bond market so far in March, more than anywhere else in Asia, barring India, according to data compiled by Bloomberg. That vulnerability explains the timid quarter-point interest-rate cut from Bank Indonesia last week when many counterparts took dramatic steps: Any more could have thrown the rupiah into a faster downward spiral.
Experts and investors had been skeptical that a country of 267 million people heavily dependent on tourism could have reported so few Covid-19 cases for as long as it did. Jakarta announced the first two March 2; now, there are at least 579 cases and 49 deaths. A weak health system and bureaucratic inertia, which hold the country back in the best of times, are a major risk. Health Minister Terawan Agus, who now appears to have been sidelined, had insisted the government has been honest and reportedly attributed the disease’s absence to divine providence. He cited budget constraints for sparse testing.
That Indonesia is an accident waiting to happen was clear to me on a short trip to Bali two weeks ago. Coming from Singapore, where offices, clubs and restaurants have been checking temperatures since late January, I was shocked by the lack of thermometers. The only surgical masks available were at the duty-free store upon departure. Vulnerability to both a cascading illness and tourism crash was palpable. Tourists still dotted the island, but their presence was markedly thinner than during any of my half-dozen prior visits. Staff sat listlessly outside Balinese massage centers and batik shirts were marked down as much 50%.
But the trouble with Indonesia goes beyond a few shops struggling to offload their tourist bait. The country’s grim prognosis is grounded in its bleak history: The last time gross domestic product shrank was during the Asian financial crisis of the late 1990s. Even in the Great Recession, expansion exceeded 4%.
The idea of growth evaporating is alarming because of what has accompanied its absence. Deep contractions in 1998 and 1999 didn't just mean a rescue from the International Monetary Fund; they spelled the violent end of a three-decade political order presided over by autocrat Suharto. A generation earlier, economic collapse contributed to the overthrow of Sukarno, Indonesia's first president, a episode captured vividly in the novel and film “The Year of Living Dangerously.”
Indonesia is a different, more mature nation than it was two decades ago. Presidents are directly elected and limited to two terms, as are provincial and municipal leaders. The national legislature is hard for any president to corral. But the current government structure has mainly known prosperity. When President Joko Widodo was re-elected last year, he aimed to boost growth from the 5% average of his first term to around 7%. Now he may consider something around 2% to be a triumph.
Civilian rule doesn't mean the military disappeared to the barracks. It's still one of the few institutions that has the ability to unite a state so divided across economics, ethnicity, faith and geography. In that context, one of the most encouraging steps in Indonesia's late response to Covid-19 was placing the National Disaster Mitigation Agency, headed by a top general, Doni Monardo, in charge of coordinating the pandemic response.
The lights don't have to go out for Indonesia. Many top officials spent their early careers helping rebuild from the catastrophe of 1998. And as pronounced as the rupiah's recent slide has been, it's still small compared with the 56% drop in 1997 and the 32% tumble the following year.
Indonesia has lost a lot of time, but has come through dark days before. It will need more of Sri Mulyani's straight talk and the kind of all-in commitment a respected general can bring.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.
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