What’s the safe level of public debt for Indonesia?That’s the debate raging in the country as politicians ratchet up the tension ahead of campaigning for next year’s presidential election.The currency’s selloff to levels not seen since the 1997-98 Asian financial crisis is only intensifying the political wrangling as President Joko Widodo’s (Jokowi) opponents blame his debt-binge for the rout.
The wave of volatility engulfing emerging markets increases the odds of another interest-rate hike in Indonesia in a policy decision on Wednesday that economists say is a close call.A rate pause this week was looking like a comfortable prediction after three rate hikes totalling one percentage point since mid-May helped to stabilize the rupiah and reverse some of the outflows earlier this year.
The coming week may prove to be a crucial one for the Indonesian rupiah.As Wednesday’s policy decision approaches, Bank Indonesia finds itself under pressure to raise the benchmark rate again even after increasing it by a combined 100 basis points since the middle of May to stem a slide in the currency.Rupiah headwinds have steadily increased in recent weeks and now include a current-account deficit threatening to widen, political uncertainty before next year’s presidential elections, rising
