Lessons Hopefully Learnt for 2015

Manggi Habir*

As we close 2014 with a weak rupiah, a high domestic interest rate and a slowing economy, the only bright spot seems to be a new government with a new style of leadership that provides hope that changes will come. And, maybe the year-end is a good time to make an assessment on what we can learn for 2015. Let me start with the rupiah, as its weakness throughout the year does reflect alot of what is wrong with our economy.

On the rupiah's weakness, we must differentiate on the source of weakness where we have little control of and where we can do something. As it is always easier to blame others for our problems, the world's two largest economies would be high on the list of external sources of our currency's problems.

The US economy, because it is the only major economy that is growing well due to its loose monetary policy, has the US dollar becoming more attractive. But the Fed realizing that good things do not last forever, is concerned of potential inflation ahead and plans to raise interest rates, making the US$ even more desirable. Just remarks that it plans to raise rates has lead to massive conversions to US dollars worldwide. This year, the US dollar has strengthened against nearly all other currencies. However, as the emerging market currencies lack deep markets, the weakness is more apparent, which unfortunately includes our rupiah.