Chatib Basri Called The Fed's Mid-January 2021 Policy Will Depress Rupiah

Former Minister of Finance, Chatib Basri. (Photo: Instagram @chatibbasri)

JAKARTA - The Minister of Finance for the 2013-2014 period Chatib Basri said that Indonesia must complete its economic recovery faster than the United States (US) if it does not want the pressure to increase

This is because the economic recovery in the US will open up more space for the country to normalize policy.

"When they recover, the normalization of the mandatory policy will have an impact on us," he said in the Mandiri Investment Forum 2021 webinar on Wednesday, January 3.

Chatib added that if the US recovery scenario is faster, then the taper tantrum scenario is not impossible to repeat.

"This reminds me of what happened in 2013 with taper tantrum conditions," he said.

For this reason, Chatib asked the government to continue working on resolving the current problem, namely the pandemic. He also said that the most rational way to deal with the effects of a pandemic is a successful vaccination program.

Even so, he is pessimistic that the completion of vaccination will dominate this year. He conveyed the narrative based on a report by one of the world's leading media.

"When talking about vaccines, it is very interesting to quote The Economist. There they said that there is a possibility for Indonesia to get 60 percent of the population vaccinated in the third quarter of 2023, "he added.

To note, taper tantrum is a condition caused by the policy of the US central bank, The Federal Reserve (Fed), which reduced the purchase of treasury bonds in 2013. The step to reduce the purchase of debt securities itself is often referred to as quantitative easing (QE).

Meanwhile, the Fed's intention to buy treasury bonds before 2013 is to provide stimulus to the market through a splash of liquidity. The hope is that the US economy can stretch because the amount of money circulating in society becomes more and more. Thus, productive activities can run with an indication of the formation of the inflation rate.

However, the impact of this policy has weakened the value of the US dollar compared to foreign currencies. One of the things that was lucky was the rupiah, which in that period had touched the psychological level of around Rp. 9,000.

However, the Fed's move through a quantitative easing approach in 2015 made the US dollar stronger. The result was predictable, the rupiah collapsed to the level of around Rp. 14,000.

Most recently, in mid-January, The Fed said that the US government's fiscal support and the country's vaccination program made prospects for economic recovery even faster. On that basis, the central bank sees room for a reduction in bond purchases at the end of the year.

This means that the US dollar will strengthen again and the rupiah will be under pressure. This is believed by Chatib Basri.

"So that's why we have to be faster to recover the economy from other countries," he concluded.