It has a government which, for all its shortcomings, has run tight budgets. It was not for nothing that international lending agencies so recently praised Indonesia, together with other Asian emerging economies, in glowing terms, or that so many experts were blindsided by the suddenness of the region's downturn. If corrective actions are taken soon, things can be put right again. The immediate priority is to get a hold on the sagging rupiah. Nothing can happen until exchange-rate stability is restored, no matter what the level might be.
Persistent volatility is a time bomb.
Banks cannot lend money to Indonesian companies when even companies themselves cannot predict their costs or their prices. The rupiah crisis is tied directly to short-term private sector debt. No one should expect any enterprise to be able to service three-quarters of its entire debt in one year, especially if repayments are to be made in expensive dollars. Indonesia has been caught in a vicious downward spiral that cannot readily be halted by the usual confidence-building measures, such as signing a big loan agreement or reform scheme. That, of course, has only sent the rupiah plunging to fresh depths, making debt repayment even more onerous.