The Durian Of Doom
Living through another Cuba?
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“We would like all quotations and invoices in USD if that’s no problem,” read the message from one of my biggest clients.
I stared at the screen for a moment. Indonesia officially mandated the use of the rupiah (IDR) for all domestic business transactions through Law No. 7 of 2011 on Currency, with its implementing regulation, Bank Indonesia Regulation No. 17/3/PBI/2015, which became effective on 1 July 2015. Laws in Indonesia don’t really take effect until the appropriate ministries issue regulations to enforce them.
At the time, everyone scrambled to change menus, websites, price lists, and so forth from US dollars (USD) to rupiah, particularly in Jakarta, Bali and Medan, which were hot spots for international business and visitors. Many people I know in middle and upper management were paid in dollars and banks allowed folks to have USD-denominated accounts. Not no mo’.
In 2011 (law), the rupiah was running about 8,700 to the dollar, and in 2015 (regulation), it was up to 13,000. Just this morning, it was 16,100.
The election of Joko (Jokowi) Widodo (2014-2024) represented a wave of nationalism and protectionism that swept the country. Not satisfied with being a major source of raw materials, agricultural products, and cheap labor for China (yes, China outsources), the new administration wanted Indonesia to become a manufacturing and shipping hub to the world.
And then came the regulations.
First, it was the oil and gas industry. For years, Indonesia was a member of OPEC+ and a net exporter of hydrocarbons. All the majors were here, busily drilling and pumping. Then the administration decided the majors should take all the risks of exploration and development, give the government a bigger slice of the pie, oh and any equipment they bring in automatically becomes property of the state. By the way, did we mention you can’t sell fuel here, as that would compete with the national oil company?
Needless to say, there was a giant sucking sound of foreign investment evacuating the country.
Then came the cabotage law. Indonesia demanded that all ships plying national waters or loading at national ports be Indonesian flagged. This meant that every ship that stopped in Indonesia had to reflag, or meet an Indonesian flagged vessel at an imaginary line in the middle of the ocean and swap cargo. You can probably guess that Indo flagging regulations chase potential customers to Vanuatu.
Cue the giant tidal wave of shipping interests paddling to the border.
Then the administration decided that all local oil had to be refined in Indonesia, which might have worked, except that the handful of refineries in the country keep blowing up, because no foreign entities want to do business here. So now the oil has to be shipped to Singapore, refined, and then repurchased at a higher price and brought back to Indonesia—presumably all on Indo-flagged vessels.
Cue the giant gurgling sound of empty gas tanks.
Then the administration decided it was time to nationalize all mining, and the raw materials had to be processed domestically before being exported. This included some of the largest gold, coal, tin, and nickel operations in the world. The companies had already invested billions in regional smelters (not in Indonesia), and they weren’t about to build new ones just to create a few local jobs.
Cue the giant landslide of mining interests heading for the exits.
This went on and on, with industry after industry—palm oil, auto manufacturing, textiles. As the economy slowly tanked, the administration decided (thanks to EU NGOs) that the Big Problem was infrastructure. What the country needed was better roads, rail, and ports, so they launched a massive building campaign of toll roads, bridges, high-speed rail, and super ports without a cohesive vision for how all this was integrated, without a regulatory environment that encouraged foreign investment, and without the traffic to support it.
Aha! said the administration. No one is using all this nifty disjointed infrastructure because we need to be a world leader in making EV batteries, even though the one resource Indonesia does not have in abundance is lithium, not to mention the bottom falling out of the EV market because no one wants them.
Cue the giant self-oxidizing bonfire of the EV industry.
Oh, and we need a monument to this visionary administration in the form of a brand-new “green” capital city, built from scratch in the middle of the jungle, far from angry citizens, public oversight, and any place a company would want its local headquarters. That’ll fix it!
The result of all this nationalist/protectionist glee is a morass of conflicting regulations, bureaucratic stagnation, competing ministries, bizarre tax regimes, myopic programs, and yes, runaway inflation. All the spending without an increase in productivity and growth has killed the golden goose.
Essentially, folks are sitting on a gold mine without a shovel—literally and figuratively.
When I read the message from my client, I had just ordered a block of the only REAL cheddar cheese available here-abouts. It’s an Australian brand that I’ve purchased for years at around IDR65,000 for 250g. I just paid IDR90,000, and other options were as high as IDR170,000, for the exact same product.
Minutes later my client asked if they could deal in USD. I practically answered “yes” before they could finish their sentence. Not that the dollar is much better, but playing the spread on FOREX means I can squeeze a bit more buying power out of my labor.
I have no problem with nationalism and protectionism, when it’s applied with wisdom and foresight, two qualities that are notably lacking in Indonesian governance. When used to the benefit of the people, these concepts can lead to higher standards of living, better career opportunities, and lower prices for everyone. As they are expressed here, it means more moola for the government, and as little as possible for everyone else.
Indonesia is a case study in theocratic socialism. Everything is owned by the government, ostensibly to the benefit of the people, but in reality only for the “in” gang. Everything is a mandate down to the level of your dinner plate. Legislation spends an inordinate amount of time worrying about personal morality and ethics, and far too little time considering whether its own actions are moral and ethical.
The consequence of all this meddling in personal affairs is a bloated carcass of a bureaucracy primping and preening over how moral the population is (forced to be), while its own guts are rotted out with corruption and greed.
There are twinkles of hope with the new administration here, which took office in October, but the lack of vision and incompetence of the previous administration will take a decade or more to play out. The current gang would do well to wipe the regulatory slate clean, simplify and lower the tax burden, and make it very painful for public officials to be caught taking bribes. Oh, and forget the shiny new capital city.
Perhaps the DOGE idea in the US will catch on here, and the economy can be turned back to serving the people, rather than just letting the gas out of the carcass of government before it explodes.
In the meantime, prices are soaring, malls are empty, tourists are avoiding, and retail chains are collapsing.
As for my response to the client, “Yes, absolutely no problem. I’ll make a note in my client profile. Thank you!”
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I struggled to think of a film du jour that captures the gross incompetence of government policies and regulations, but then it hit me…The Grapes of Wrath (1940), John Ford’s brilliant adaptation of John Steinbeck’s hauntng novel about the personal price of government greed and ineptitude. Henry Fonda and John Carradine give career-defining performances. Look. Listen. Learn.
Counting pennies on the Far Side:
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Contact Bernard Grover: bernard (at) radiofarside.com
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Your top image is hilarious! Durian is some nasty stuff, but a great weapon.
Just when I think U.S. politicians are dumbest and most corrupt, I see a story like yours about even worse government actors. I wish your new administration all the best but when you look at history and so many countries around the world who've indulged their socialist and totalitarian impulses, like Cuba, for example, the damage is insinuated long term and even if it is cured, it might be decades before things change.
Glad you have a client that pays you $'s even though those are going downhill, fast. Maybe you can get them to pay in BTC. In any event, good luck!
Danny Huckabee