Indonesia pushed to the edge
Commentary: Indonesia pushed to the edge - Business Asia by Bloomberg - International Herald Tribune
Commentary: Indonesia pushed to the edge
By William Pesek Jr. Bloomberg News
MONDAY, SEPTEMBER 5, 2005
Since the late 1990s, when the Asian economic tigers were reduced to sickly pussycats, few words have inspired more dread in the region than "crisis." Traveling around Asia these days, it is striking how often average folks, economists and businesspeople are speaking of a crisis in Asia in reference to surging oil prices.
Economic views in Asia often come with a dash of hyperbole, but when smart, respected and sober economists like Ifzal Ali of the Asian Development Bank start discussing a crisis, it is time to take the issue seriously.
As far back as July 13, in his Manila office, Ali warned that "oil could indeed be nothing short of crisis for Asia if it keeps rising from here." That was back when crude oil was $58 a barrel. Today, it is approaching $70.
The rise in oil prices is an even bigger problem considering a report Ali just released. It found that governments are not doing enough to create jobs, improve living standards and reduce poverty in a region where a fifth of the population lives on less than $1 a day.
Why should investors care? For all the hype about booming Asian growth, such findings - coupled with high oil costs - are a reminder that too many people are close to the edge financially. That could have big implications for growth rates, debt yields and stock prices in the months ahead.
"Governments must do a better job," Ali, chief economist at the Asian Development Bank, said on Aug. 30.
Nowhere is the extent to which high oil prices are complicating efforts to raise living standards more apparent than in Indonesia, Southeast Asia's biggest economy.
Susilo Bambang Yudhoyono is facing the biggest challenge of his 12 months as Indonesia's president, and it is a familiar one: fuel subsidies. Indonesia's currency is plunging as crude oil prices threaten its plans to cut the budget, eroding confidence in the government.
Not since the darkest days of 1997 and 1998 have traders fretted so much about the rupiah. Its plunge then was so destabilizing that it precipitated the ouster of President Suharto. His powerful political machine, 32 years in the making, proved no match.
The rupiah, down 9.3 percent against the U.S. dollar this year, is making headlines again. That the decline is related to fuel subsidies is causing bad memories for some investors involved in Indonesia in the late 1990s.
Back then, the International Monetary Fund urged Indonesia to scrap fuel and other subsidies. The steps sparked riots, lootings and deaths that foreshadowed Suharto's demise.
Yes, Indonesia's fuel subsidies need to go. Not only are they a huge fiscal burden, but they also muddy the forces of supply and demand. Investors were disappointed on Wednesday when Yudhoyono said he would hold off on cutting subsidies.
It means Indonesia will have to spend about 138.6 trillion rupiah, or $13 billion, this year to keep fuel cheap in a country where 17 percent of the population is without fulltime employment. Rising subsidies may increase the budget deficit to 48.3 trillion rupiah. Credit-rating companies already are considering reviewing Indonesia's ratings.
Recent events will force the government to take a more active role in comforting investors. The central bank has raised its benchmark interest rate to a two-year high to halt the rupiah's plunge. Economists like Fauzi Ichsan of Standard Chartered in Jakarta say they think further rate hikes are likely.
Now, all eyes are on Yudhoyono to see how he manages things. It is a difficult balancing act. Indonesia's main accomplishment since the late 1990s has been restoring social stability. That could be compromised if the tens of millions of Indonesians living on less than $1 or $2 a day take to the streets in protest. It has to be done, yet it must be done artfully.
All this puts Indonesia on the front lines of Asia's vulnerability to rising oil prices. Might it be a harbinger of region-wide problems? Consider that even healthier economies are getting tripped up.
Take Thailand, which until a year ago was seen as an economic role model for Asia. Thailand has come a long way since the dark days of 1997. It strengthened its financial system, reduced foreign debt and worked to eliminate corruption.
In just a matter of weeks Thailand went from Asian growth star to an economy being slammed by rising oil costs. It belies the government's claims that most of Thailand's population prospered from the 6.1 percent growth last year. So do expectations for just 3.5 percent growth this year.
What if China, whose growth carries much of the rest of Asia, slows as commodity prices rise? Or those higher costs pose a head wind for Japan, which is finally recovering from 15 years of negligible growth? Might India, Asia's other nascent superpower, run into problems?
Asia is arguably more affected by oil prices than any other region. It accounts for about 30 percent of the world's oil consumption, and energy efficiency in much of the region lags far behind industrialized nations. Bottom line: Oil at current levels, never mind higher ones, is a growing problem for Asia.
Since the late 1990s, when the Asian economic tigers were reduced to sickly pussycats, few words have inspired more dread in the region than "crisis." Traveling around Asia these days, it is striking how often average folks, economists and businesspeople are speaking of a crisis in Asia in reference to surging oil prices.
Economic views in Asia often come with a dash of hyperbole, but when smart, respected and sober economists like Ifzal Ali of the Asian Development Bank start discussing a crisis, it is time to take the issue seriously.
As far back as July 13, in his Manila office, Ali warned that "oil could indeed be nothing short of crisis for Asia if it keeps rising from here." That was back when crude oil was $58 a barrel. Today, it is approaching $70.
The rise in oil prices is an even bigger problem considering a report Ali just released. It found that governments are not doing enough to create jobs, improve living standards and reduce poverty in a region where a fifth of the population lives on less than $1 a day.
Why should investors care? For all the hype about booming Asian growth, such findings - coupled with high oil costs - are a reminder that too many people are close to the edge financially. That could have big implications for growth rates, debt yields and stock prices in the months ahead.
"Governments must do a better job," Ali, chief economist at the Asian Development Bank, said on Aug. 30.
Nowhere is the extent to which high oil prices are complicating efforts to raise living standards more apparent than in Indonesia, Southeast Asia's biggest economy.
Susilo Bambang Yudhoyono is facing the biggest challenge of his 12 months as Indonesia's president, and it is a familiar one: fuel subsidies. Indonesia's currency is plunging as crude oil prices threaten its plans to cut the budget, eroding confidence in the government.
Not since the darkest days of 1997 and 1998 have traders fretted so much about the rupiah. Its plunge then was so destabilizing that it precipitated the ouster of President Suharto. His powerful political machine, 32 years in the making, proved no match.
The rupiah, down 9.3 percent against the U.S. dollar this year, is making headlines again. That the decline is related to fuel subsidies is causing bad memories for some investors involved in Indonesia in the late 1990s.
Back then, the International Monetary Fund urged Indonesia to scrap fuel and other subsidies. The steps sparked riots, lootings and deaths that foreshadowed Suharto's demise.
Yes, Indonesia's fuel subsidies need to go. Not only are they a huge fiscal burden, but they also muddy the forces of supply and demand. Investors were disappointed on Wednesday when Yudhoyono said he would hold off on cutting subsidies.
It means Indonesia will have to spend about 138.6 trillion rupiah, or $13 billion, this year to keep fuel cheap in a country where 17 percent of the population is without fulltime employment. Rising subsidies may increase the budget deficit to 48.3 trillion rupiah. Credit-rating companies already are considering reviewing Indonesia's ratings.
Recent events will force the government to take a more active role in comforting investors. The central bank has raised its benchmark interest rate to a two-year high to halt the rupiah's plunge. Economists like Fauzi Ichsan of Standard Chartered in Jakarta say they think further rate hikes are likely.
Now, all eyes are on Yudhoyono to see how he manages things. It is a difficult balancing act. Indonesia's main accomplishment since the late 1990s has been restoring social stability. That could be compromised if the tens of millions of Indonesians living on less than $1 or $2 a day take to the streets in protest. It has to be done, yet it must be done artfully.
All this puts Indonesia on the front lines of Asia's vulnerability to rising oil prices. Might it be a harbinger of region-wide problems? Consider that even healthier economies are getting tripped up.
Take Thailand, which until a year ago was seen as an economic role model for Asia. Thailand has come a long way since the dark days of 1997. It strengthened its financial system, reduced foreign debt and worked to eliminate corruption.
In just a matter of weeks Thailand went from Asian growth star to an economy being slammed by rising oil costs. It belies the government's claims that most of Thailand's population prospered from the 6.1 percent growth last year. So do expectations for just 3.5 percent growth this year.
What if China, whose growth carries much of the rest of Asia, slows as commodity prices rise? Or those higher costs pose a head wind for Japan, which is finally recovering from 15 years of negligible growth? Might India, Asia's other nascent superpower, run into problems?
Asia is arguably more affected by oil prices than any other region. It accounts for about 30 percent of the world's oil consumption, and energy efficiency in much of the region lags far behind industrialized nations. Bottom line: Oil at current levels, never mind higher ones, is a growing problem for Asia.
Since the late 1990s, when the Asian economic tigers were reduced to sickly pussycats, few words have inspired more dread in the region than "crisis." Traveling around Asia these days, it is striking how often average folks, economists and businesspeople are speaking of a crisis in Asia in reference to surging oil prices.
Economic views in Asia often come with a dash of hyperbole, but when smart, respected and sober economists like Ifzal Ali of the Asian Development Bank start discussing a crisis, it is time to take the issue seriously.
As far back as July 13, in his Manila office, Ali warned that "oil could indeed be nothing short of crisis for Asia if it keeps rising from here." That was back when crude oil was $58 a barrel. Today, it is approaching $70.
The rise in oil prices is an even bigger problem considering a report Ali just released. It found that governments are not doing enough to create jobs, improve living standards and reduce poverty in a region where a fifth of the population lives on less than $1 a day.
Why should investors care? For all the hype about booming Asian growth, such findings - coupled with high oil costs - are a reminder that too many people are close to the edge financially. That could have big implications for growth rates, debt yields and stock prices in the months ahead.
"Governments must do a better job," Ali, chief economist at the Asian Development Bank, said on Aug. 30.
Nowhere is the extent to which high oil prices are complicating efforts to raise living standards more apparent than in Indonesia, Southeast Asia's biggest economy.
Susilo Bambang Yudhoyono is facing the biggest challenge of his 12 months as Indonesia's president, and it is a familiar one: fuel subsidies. Indonesia's currency is plunging as crude oil prices threaten its plans to cut the budget, eroding confidence in the government.
Not since the darkest days of 1997 and 1998 have traders fretted so much about the rupiah. Its plunge then was so destabilizing that it precipitated the ouster of President Suharto. His powerful political machine, 32 years in the making, proved no match.
The rupiah, down 9.3 percent against the U.S. dollar this year, is making headlines again. That the decline is related to fuel subsidies is causing bad memories for some investors involved in Indonesia in the late 1990s.
Back then, the International Monetary Fund urged Indonesia to scrap fuel and other subsidies. The steps sparked riots, lootings and deaths that foreshadowed Suharto's demise.
Yes, Indonesia's fuel subsidies need to go. Not only are they a huge fiscal burden, but they also muddy the forces of supply and demand. Investors were disappointed on Wednesday when Yudhoyono said he would hold off on cutting subsidies.
It means Indonesia will have to spend about 138.6 trillion rupiah, or $13 billion, this year to keep fuel cheap in a country where 17 percent of the population is without fulltime employment. Rising subsidies may increase the budget deficit to 48.3 trillion rupiah. Credit-rating companies already are considering reviewing Indonesia's ratings.
Recent events will force the government to take a more active role in comforting investors. The central bank has raised its benchmark interest rate to a two-year high to halt the rupiah's plunge. Economists like Fauzi Ichsan of Standard Chartered in Jakarta say they think further rate hikes are likely.
Now, all eyes are on Yudhoyono to see how he manages things. It is a difficult balancing act. Indonesia's main accomplishment since the late 1990s has been restoring social stability. That could be compromised if the tens of millions of Indonesians living on less than $1 or $2 a day take to the streets in protest. It has to be done, yet it must be done artfully.
All this puts Indonesia on the front lines of Asia's vulnerability to rising oil prices. Might it be a harbinger of region-wide problems? Consider that even healthier economies are getting tripped up.
Take Thailand, which until a year ago was seen as an economic role model for Asia. Thailand has come a long way since the dark days of 1997. It strengthened its financial system, reduced foreign debt and worked to eliminate corruption.
In just a matter of weeks Thailand went from Asian growth star to an economy being slammed by rising oil costs. It belies the government's claims that most of Thailand's population prospered from the 6.1 percent growth last year. So do expectations for just 3.5 percent growth this year.
What if China, whose growth carries much of the rest of Asia, slows as commodity prices rise? Or those higher costs pose a head wind for Japan, which is finally recovering from 15 years of negligible growth? Might India, Asia's other nascent superpower, run into problems?
Asia is arguably more affected by oil prices than any other region. It accounts for about 30 percent of the world's oil consumption, and energy efficiency in much of the region lags far behind industrialized nations. Bottom line: Oil at current levels, never mind higher ones, is a growing problem for Asia.
Since the late 1990s, when the Asian economic tigers were reduced to sickly pussycats, few words have inspired more dread in the region than "crisis." Traveling around Asia these days, it is striking how often average folks, economists and businesspeople are speaking of a crisis in Asia in reference to surging oil prices.
Economic views in Asia often come with a dash of hyperbole, but when smart, respected and sober economists like Ifzal Ali of the Asian Development Bank start discussing a crisis, it is time to take the issue seriously.
As far back as July 13, in his Manila office, Ali warned that "oil could indeed be nothing short of crisis for Asia if it keeps rising from here." That was back when crude oil was $58 a barrel. Today, it is approaching $70.
The rise in oil prices is an even bigger problem considering a report Ali just released. It found that governments are not doing enough to create jobs, improve living standards and reduce poverty in a region where a fifth of the population lives on less than $1 a day.
Why should investors care? For all the hype about booming Asian growth, such findings - coupled with high oil costs - are a reminder that too many people are close to the edge financially. That could have big implications for growth rates, debt yields and stock prices in the months ahead.
"Governments must do a better job," Ali, chief economist at the Asian Development Bank, said on Aug. 30.
Nowhere is the extent to which high oil prices are complicating efforts to raise living standards more apparent than in Indonesia, Southeast Asia's biggest economy.
Susilo Bambang Yudhoyono is facing the biggest challenge of his 12 months as Indonesia's president, and it is a familiar one: fuel subsidies. Indonesia's currency is plunging as crude oil prices threaten its plans to cut the budget, eroding confidence in the government.
Not since the darkest days of 1997 and 1998 have traders fretted so much about the rupiah. Its plunge then was so destabilizing that it precipitated the ouster of President Suharto. His powerful political machine, 32 years in the making, proved no match.
The rupiah, down 9.3 percent against the U.S. dollar this year, is making headlines again. That the decline is related to fuel subsidies is causing bad memories for some investors involved in Indonesia in the late 1990s.
Back then, the International Monetary Fund urged Indonesia to scrap fuel and other subsidies. The steps sparked riots, lootings and deaths that foreshadowed Suharto's demise.
Yes, Indonesia's fuel subsidies need to go. Not only are they a huge fiscal burden, but they also muddy the forces of supply and demand. Investors were disappointed on Wednesday when Yudhoyono said he would hold off on cutting subsidies.
It means Indonesia will have to spend about 138.6 trillion rupiah, or $13 billion, this year to keep fuel cheap in a country where 17 percent of the population is without fulltime employment. Rising subsidies may increase the budget deficit to 48.3 trillion rupiah. Credit-rating companies already are considering reviewing Indonesia's ratings.
Recent events will force the government to take a more active role in comforting investors. The central bank has raised its benchmark interest rate to a two-year high to halt the rupiah's plunge. Economists like Fauzi Ichsan of Standard Chartered in Jakarta say they think further rate hikes are likely.
Now, all eyes are on Yudhoyono to see how he manages things. It is a difficult balancing act. Indonesia's main accomplishment since the late 1990s has been restoring social stability. That could be compromised if the tens of millions of Indonesians living on less than $1 or $2 a day take to the streets in protest. It has to be done, yet it must be done artfully.
All this puts Indonesia on the front lines of Asia's vulnerability to rising oil prices. Might it be a harbinger of region-wide problems? Consider that even healthier economies are getting tripped up.
Take Thailand, which until a year ago was seen as an economic role model for Asia. Thailand has come a long way since the dark days of 1997. It strengthened its financial system, reduced foreign debt and worked to eliminate corruption.
In just a matter of weeks Thailand went from Asian growth star to an economy being slammed by rising oil costs. It belies the government's claims that most of Thailand's population prospered from the 6.1 percent growth last year. So do expectations for just 3.5 percent growth this year.
What if China, whose growth carries much of the rest of Asia, slows as commodity prices rise? Or those higher costs pose a head wind for Japan, which is finally recovering from 15 years of negligible growth? Might India, Asia's other nascent superpower, run into problems?
Asia is arguably more affected by oil prices than any other region. It accounts for about 30 percent of the world's oil consumption, and energy efficiency in much of the region lags far behind industrialized nations. Bottom line: Oil at current levels, never mind higher ones, is a growing problem for Asia.
Commentary: Indonesia pushed to the edge
By William Pesek Jr. Bloomberg News
MONDAY, SEPTEMBER 5, 2005
Since the late 1990s, when the Asian economic tigers were reduced to sickly pussycats, few words have inspired more dread in the region than "crisis." Traveling around Asia these days, it is striking how often average folks, economists and businesspeople are speaking of a crisis in Asia in reference to surging oil prices.
Economic views in Asia often come with a dash of hyperbole, but when smart, respected and sober economists like Ifzal Ali of the Asian Development Bank start discussing a crisis, it is time to take the issue seriously.
As far back as July 13, in his Manila office, Ali warned that "oil could indeed be nothing short of crisis for Asia if it keeps rising from here." That was back when crude oil was $58 a barrel. Today, it is approaching $70.
The rise in oil prices is an even bigger problem considering a report Ali just released. It found that governments are not doing enough to create jobs, improve living standards and reduce poverty in a region where a fifth of the population lives on less than $1 a day.
Why should investors care? For all the hype about booming Asian growth, such findings - coupled with high oil costs - are a reminder that too many people are close to the edge financially. That could have big implications for growth rates, debt yields and stock prices in the months ahead.
"Governments must do a better job," Ali, chief economist at the Asian Development Bank, said on Aug. 30.
Nowhere is the extent to which high oil prices are complicating efforts to raise living standards more apparent than in Indonesia, Southeast Asia's biggest economy.
Susilo Bambang Yudhoyono is facing the biggest challenge of his 12 months as Indonesia's president, and it is a familiar one: fuel subsidies. Indonesia's currency is plunging as crude oil prices threaten its plans to cut the budget, eroding confidence in the government.
Not since the darkest days of 1997 and 1998 have traders fretted so much about the rupiah. Its plunge then was so destabilizing that it precipitated the ouster of President Suharto. His powerful political machine, 32 years in the making, proved no match.
The rupiah, down 9.3 percent against the U.S. dollar this year, is making headlines again. That the decline is related to fuel subsidies is causing bad memories for some investors involved in Indonesia in the late 1990s.
Back then, the International Monetary Fund urged Indonesia to scrap fuel and other subsidies. The steps sparked riots, lootings and deaths that foreshadowed Suharto's demise.
Yes, Indonesia's fuel subsidies need to go. Not only are they a huge fiscal burden, but they also muddy the forces of supply and demand. Investors were disappointed on Wednesday when Yudhoyono said he would hold off on cutting subsidies.
It means Indonesia will have to spend about 138.6 trillion rupiah, or $13 billion, this year to keep fuel cheap in a country where 17 percent of the population is without fulltime employment. Rising subsidies may increase the budget deficit to 48.3 trillion rupiah. Credit-rating companies already are considering reviewing Indonesia's ratings.
Recent events will force the government to take a more active role in comforting investors. The central bank has raised its benchmark interest rate to a two-year high to halt the rupiah's plunge. Economists like Fauzi Ichsan of Standard Chartered in Jakarta say they think further rate hikes are likely.
Now, all eyes are on Yudhoyono to see how he manages things. It is a difficult balancing act. Indonesia's main accomplishment since the late 1990s has been restoring social stability. That could be compromised if the tens of millions of Indonesians living on less than $1 or $2 a day take to the streets in protest. It has to be done, yet it must be done artfully.
All this puts Indonesia on the front lines of Asia's vulnerability to rising oil prices. Might it be a harbinger of region-wide problems? Consider that even healthier economies are getting tripped up.
Take Thailand, which until a year ago was seen as an economic role model for Asia. Thailand has come a long way since the dark days of 1997. It strengthened its financial system, reduced foreign debt and worked to eliminate corruption.
In just a matter of weeks Thailand went from Asian growth star to an economy being slammed by rising oil costs. It belies the government's claims that most of Thailand's population prospered from the 6.1 percent growth last year. So do expectations for just 3.5 percent growth this year.
What if China, whose growth carries much of the rest of Asia, slows as commodity prices rise? Or those higher costs pose a head wind for Japan, which is finally recovering from 15 years of negligible growth? Might India, Asia's other nascent superpower, run into problems?
Asia is arguably more affected by oil prices than any other region. It accounts for about 30 percent of the world's oil consumption, and energy efficiency in much of the region lags far behind industrialized nations. Bottom line: Oil at current levels, never mind higher ones, is a growing problem for Asia.
Since the late 1990s, when the Asian economic tigers were reduced to sickly pussycats, few words have inspired more dread in the region than "crisis." Traveling around Asia these days, it is striking how often average folks, economists and businesspeople are speaking of a crisis in Asia in reference to surging oil prices.
Economic views in Asia often come with a dash of hyperbole, but when smart, respected and sober economists like Ifzal Ali of the Asian Development Bank start discussing a crisis, it is time to take the issue seriously.
As far back as July 13, in his Manila office, Ali warned that "oil could indeed be nothing short of crisis for Asia if it keeps rising from here." That was back when crude oil was $58 a barrel. Today, it is approaching $70.
The rise in oil prices is an even bigger problem considering a report Ali just released. It found that governments are not doing enough to create jobs, improve living standards and reduce poverty in a region where a fifth of the population lives on less than $1 a day.
Why should investors care? For all the hype about booming Asian growth, such findings - coupled with high oil costs - are a reminder that too many people are close to the edge financially. That could have big implications for growth rates, debt yields and stock prices in the months ahead.
"Governments must do a better job," Ali, chief economist at the Asian Development Bank, said on Aug. 30.
Nowhere is the extent to which high oil prices are complicating efforts to raise living standards more apparent than in Indonesia, Southeast Asia's biggest economy.
Susilo Bambang Yudhoyono is facing the biggest challenge of his 12 months as Indonesia's president, and it is a familiar one: fuel subsidies. Indonesia's currency is plunging as crude oil prices threaten its plans to cut the budget, eroding confidence in the government.
Not since the darkest days of 1997 and 1998 have traders fretted so much about the rupiah. Its plunge then was so destabilizing that it precipitated the ouster of President Suharto. His powerful political machine, 32 years in the making, proved no match.
The rupiah, down 9.3 percent against the U.S. dollar this year, is making headlines again. That the decline is related to fuel subsidies is causing bad memories for some investors involved in Indonesia in the late 1990s.
Back then, the International Monetary Fund urged Indonesia to scrap fuel and other subsidies. The steps sparked riots, lootings and deaths that foreshadowed Suharto's demise.
Yes, Indonesia's fuel subsidies need to go. Not only are they a huge fiscal burden, but they also muddy the forces of supply and demand. Investors were disappointed on Wednesday when Yudhoyono said he would hold off on cutting subsidies.
It means Indonesia will have to spend about 138.6 trillion rupiah, or $13 billion, this year to keep fuel cheap in a country where 17 percent of the population is without fulltime employment. Rising subsidies may increase the budget deficit to 48.3 trillion rupiah. Credit-rating companies already are considering reviewing Indonesia's ratings.
Recent events will force the government to take a more active role in comforting investors. The central bank has raised its benchmark interest rate to a two-year high to halt the rupiah's plunge. Economists like Fauzi Ichsan of Standard Chartered in Jakarta say they think further rate hikes are likely.
Now, all eyes are on Yudhoyono to see how he manages things. It is a difficult balancing act. Indonesia's main accomplishment since the late 1990s has been restoring social stability. That could be compromised if the tens of millions of Indonesians living on less than $1 or $2 a day take to the streets in protest. It has to be done, yet it must be done artfully.
All this puts Indonesia on the front lines of Asia's vulnerability to rising oil prices. Might it be a harbinger of region-wide problems? Consider that even healthier economies are getting tripped up.
Take Thailand, which until a year ago was seen as an economic role model for Asia. Thailand has come a long way since the dark days of 1997. It strengthened its financial system, reduced foreign debt and worked to eliminate corruption.
In just a matter of weeks Thailand went from Asian growth star to an economy being slammed by rising oil costs. It belies the government's claims that most of Thailand's population prospered from the 6.1 percent growth last year. So do expectations for just 3.5 percent growth this year.
What if China, whose growth carries much of the rest of Asia, slows as commodity prices rise? Or those higher costs pose a head wind for Japan, which is finally recovering from 15 years of negligible growth? Might India, Asia's other nascent superpower, run into problems?
Asia is arguably more affected by oil prices than any other region. It accounts for about 30 percent of the world's oil consumption, and energy efficiency in much of the region lags far behind industrialized nations. Bottom line: Oil at current levels, never mind higher ones, is a growing problem for Asia.
Since the late 1990s, when the Asian economic tigers were reduced to sickly pussycats, few words have inspired more dread in the region than "crisis." Traveling around Asia these days, it is striking how often average folks, economists and businesspeople are speaking of a crisis in Asia in reference to surging oil prices.
Economic views in Asia often come with a dash of hyperbole, but when smart, respected and sober economists like Ifzal Ali of the Asian Development Bank start discussing a crisis, it is time to take the issue seriously.
As far back as July 13, in his Manila office, Ali warned that "oil could indeed be nothing short of crisis for Asia if it keeps rising from here." That was back when crude oil was $58 a barrel. Today, it is approaching $70.
The rise in oil prices is an even bigger problem considering a report Ali just released. It found that governments are not doing enough to create jobs, improve living standards and reduce poverty in a region where a fifth of the population lives on less than $1 a day.
Why should investors care? For all the hype about booming Asian growth, such findings - coupled with high oil costs - are a reminder that too many people are close to the edge financially. That could have big implications for growth rates, debt yields and stock prices in the months ahead.
"Governments must do a better job," Ali, chief economist at the Asian Development Bank, said on Aug. 30.
Nowhere is the extent to which high oil prices are complicating efforts to raise living standards more apparent than in Indonesia, Southeast Asia's biggest economy.
Susilo Bambang Yudhoyono is facing the biggest challenge of his 12 months as Indonesia's president, and it is a familiar one: fuel subsidies. Indonesia's currency is plunging as crude oil prices threaten its plans to cut the budget, eroding confidence in the government.
Not since the darkest days of 1997 and 1998 have traders fretted so much about the rupiah. Its plunge then was so destabilizing that it precipitated the ouster of President Suharto. His powerful political machine, 32 years in the making, proved no match.
The rupiah, down 9.3 percent against the U.S. dollar this year, is making headlines again. That the decline is related to fuel subsidies is causing bad memories for some investors involved in Indonesia in the late 1990s.
Back then, the International Monetary Fund urged Indonesia to scrap fuel and other subsidies. The steps sparked riots, lootings and deaths that foreshadowed Suharto's demise.
Yes, Indonesia's fuel subsidies need to go. Not only are they a huge fiscal burden, but they also muddy the forces of supply and demand. Investors were disappointed on Wednesday when Yudhoyono said he would hold off on cutting subsidies.
It means Indonesia will have to spend about 138.6 trillion rupiah, or $13 billion, this year to keep fuel cheap in a country where 17 percent of the population is without fulltime employment. Rising subsidies may increase the budget deficit to 48.3 trillion rupiah. Credit-rating companies already are considering reviewing Indonesia's ratings.
Recent events will force the government to take a more active role in comforting investors. The central bank has raised its benchmark interest rate to a two-year high to halt the rupiah's plunge. Economists like Fauzi Ichsan of Standard Chartered in Jakarta say they think further rate hikes are likely.
Now, all eyes are on Yudhoyono to see how he manages things. It is a difficult balancing act. Indonesia's main accomplishment since the late 1990s has been restoring social stability. That could be compromised if the tens of millions of Indonesians living on less than $1 or $2 a day take to the streets in protest. It has to be done, yet it must be done artfully.
All this puts Indonesia on the front lines of Asia's vulnerability to rising oil prices. Might it be a harbinger of region-wide problems? Consider that even healthier economies are getting tripped up.
Take Thailand, which until a year ago was seen as an economic role model for Asia. Thailand has come a long way since the dark days of 1997. It strengthened its financial system, reduced foreign debt and worked to eliminate corruption.
In just a matter of weeks Thailand went from Asian growth star to an economy being slammed by rising oil costs. It belies the government's claims that most of Thailand's population prospered from the 6.1 percent growth last year. So do expectations for just 3.5 percent growth this year.
What if China, whose growth carries much of the rest of Asia, slows as commodity prices rise? Or those higher costs pose a head wind for Japan, which is finally recovering from 15 years of negligible growth? Might India, Asia's other nascent superpower, run into problems?
Asia is arguably more affected by oil prices than any other region. It accounts for about 30 percent of the world's oil consumption, and energy efficiency in much of the region lags far behind industrialized nations. Bottom line: Oil at current levels, never mind higher ones, is a growing problem for Asia.
Since the late 1990s, when the Asian economic tigers were reduced to sickly pussycats, few words have inspired more dread in the region than "crisis." Traveling around Asia these days, it is striking how often average folks, economists and businesspeople are speaking of a crisis in Asia in reference to surging oil prices.
Economic views in Asia often come with a dash of hyperbole, but when smart, respected and sober economists like Ifzal Ali of the Asian Development Bank start discussing a crisis, it is time to take the issue seriously.
As far back as July 13, in his Manila office, Ali warned that "oil could indeed be nothing short of crisis for Asia if it keeps rising from here." That was back when crude oil was $58 a barrel. Today, it is approaching $70.
The rise in oil prices is an even bigger problem considering a report Ali just released. It found that governments are not doing enough to create jobs, improve living standards and reduce poverty in a region where a fifth of the population lives on less than $1 a day.
Why should investors care? For all the hype about booming Asian growth, such findings - coupled with high oil costs - are a reminder that too many people are close to the edge financially. That could have big implications for growth rates, debt yields and stock prices in the months ahead.
"Governments must do a better job," Ali, chief economist at the Asian Development Bank, said on Aug. 30.
Nowhere is the extent to which high oil prices are complicating efforts to raise living standards more apparent than in Indonesia, Southeast Asia's biggest economy.
Susilo Bambang Yudhoyono is facing the biggest challenge of his 12 months as Indonesia's president, and it is a familiar one: fuel subsidies. Indonesia's currency is plunging as crude oil prices threaten its plans to cut the budget, eroding confidence in the government.
Not since the darkest days of 1997 and 1998 have traders fretted so much about the rupiah. Its plunge then was so destabilizing that it precipitated the ouster of President Suharto. His powerful political machine, 32 years in the making, proved no match.
The rupiah, down 9.3 percent against the U.S. dollar this year, is making headlines again. That the decline is related to fuel subsidies is causing bad memories for some investors involved in Indonesia in the late 1990s.
Back then, the International Monetary Fund urged Indonesia to scrap fuel and other subsidies. The steps sparked riots, lootings and deaths that foreshadowed Suharto's demise.
Yes, Indonesia's fuel subsidies need to go. Not only are they a huge fiscal burden, but they also muddy the forces of supply and demand. Investors were disappointed on Wednesday when Yudhoyono said he would hold off on cutting subsidies.
It means Indonesia will have to spend about 138.6 trillion rupiah, or $13 billion, this year to keep fuel cheap in a country where 17 percent of the population is without fulltime employment. Rising subsidies may increase the budget deficit to 48.3 trillion rupiah. Credit-rating companies already are considering reviewing Indonesia's ratings.
Recent events will force the government to take a more active role in comforting investors. The central bank has raised its benchmark interest rate to a two-year high to halt the rupiah's plunge. Economists like Fauzi Ichsan of Standard Chartered in Jakarta say they think further rate hikes are likely.
Now, all eyes are on Yudhoyono to see how he manages things. It is a difficult balancing act. Indonesia's main accomplishment since the late 1990s has been restoring social stability. That could be compromised if the tens of millions of Indonesians living on less than $1 or $2 a day take to the streets in protest. It has to be done, yet it must be done artfully.
All this puts Indonesia on the front lines of Asia's vulnerability to rising oil prices. Might it be a harbinger of region-wide problems? Consider that even healthier economies are getting tripped up.
Take Thailand, which until a year ago was seen as an economic role model for Asia. Thailand has come a long way since the dark days of 1997. It strengthened its financial system, reduced foreign debt and worked to eliminate corruption.
In just a matter of weeks Thailand went from Asian growth star to an economy being slammed by rising oil costs. It belies the government's claims that most of Thailand's population prospered from the 6.1 percent growth last year. So do expectations for just 3.5 percent growth this year.
What if China, whose growth carries much of the rest of Asia, slows as commodity prices rise? Or those higher costs pose a head wind for Japan, which is finally recovering from 15 years of negligible growth? Might India, Asia's other nascent superpower, run into problems?
Asia is arguably more affected by oil prices than any other region. It accounts for about 30 percent of the world's oil consumption, and energy efficiency in much of the region lags far behind industrialized nations. Bottom line: Oil at current levels, never mind higher ones, is a growing problem for Asia.
posted by Marcel at 3:48 PM
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