The Rupiah is strong because of the debt of many governments

Jakarta, CNBC Indonesia – Throughout November 2018, the rupee continued to show strength against the US dollar.

According to Faisal Basri, chief economist of INDEF (Institute for Economic Development and Finance), the strengthening of the rupee was not due to the "sweat" of the government to improve the Indonesian economy, but because of the debts that continued to be accumulated.

"It looks like the government debt is increasing, the debt is all the more important because it contributes to the exchange rate of the rupee, so the rupee does not improve because of sweat. of our blood [pemerintah Indonesia]but of debt, "said Faisal during a presentation at the INDEF National Seminar at the Bidakara Hotel on Wednesday (28/11/2018).

Photo: Faisal Basri talks about the current state of Indonesia's debt (CNBC Indonesia)

Faisal explained that debt is created from capital flows or foreign investors entering through government bonds. According to him, the government has "sold" interest rates, so that many investors have entered Indonesia.

Nevertheless, Faisal did not deny that the large amount of foreign capital entered could boost the value of the currency of a country, including the rupee. But keep in mind that this only happens in the short term.

"If the rupiah moves every day, monetary phenomena.In the short term, can the relationship between the DAC (current account deficit) and the rupee change." Wanting the CAD to deteriorate, the rupee can s'. improve, because the public debt is very important. "

"The government has sold high interest rates, so the money has come in. So the rupee has strengthened because the money has come, [modal] foreigners come or not, he is influenced by how much investment he makes [investor] to enter a country. "If the government raises interest rates, capital will come automatically, not because it believes in Indonesia," Faisal said.

If you want the rupiah to stabilize, Faisal said, the government needs to improve the current account deficit or the DAC structurally. Otherwise, the rupee may still weaken.

"In the medium term next year, 99% of the rupiah will weaken.When speaking of long term, the relationship between the rupee and the current account deficit is very tight.The rupee will weaken while at the along the deficit. "

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