Econ_Sep_22

The Economist

September 22nd 2018

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HERE are many ways to defend a cur-

rency. Ayam Geprek Juara, an Indone-

sian restaurant chain that serves crushed

fried chicken, has offered free meals this

month to customers who can show they

have sold dollars for rupiah that day. The

restaurant has provided more than 80

meals to these “rupiah warriors”, accord-

ing to Reuters, a news agency.

Perhaps it should extend the offer to the

staff of Bank Indonesia, the country’s cen-

tral bank, which is only about 20 minutes

away from one of the restaurant’s

branches. To defend the rupiah, it has been

selling billions of dollars of foreign-curren-

cy reserves, which have fallen from over

$125bn in January to less than $112bn inAu-

gust. Despite these sales, and four interest-

rate rises since May, the rupiah has lost al-

most 10% of its value against the dollar this

year, returning to levels last seen during

the Asian financial crisis of1997-98.

India’s rupee has fared even worse,

reaching a record low against the dollar.

And even where Asia’s currencies have re-

mained steady, its stockmarkets have fal-

tered. Hong Kong’s Hang Seng index fell by

20% from late January to September 12th,

meeting one definition of a “bear market”.

Mainland China’smarkets are struggling.

A person returning from Mars would

assume that something horrible had hap-

pened in the region, says Chris Wood of

CLSA

, a brokerage. But in fact Asia’s emerg-

trade fair was at its busiest for six years, ac-

cording to the Institute of International Fi-

nance, an industry group. Many American

customers are obviously keen to shop be-

fore the broader tariffs take effect. Some of

China’s neighbours, especially Vietnam,

believe they can win the trade war by tak-

ing in its refugees: the manufacturers that

move out ofChina to escape tariffs.

India and Indonesia are largely insulat-

ed from the trade war, thanks to the

strength of their domestic demand. But

that same strength leaves them exposed to

two other dangers—the higher oil price and

America’s remorseless monetary tighten-

ing. India’s oil-import bill for the past five

months was more than 50% higher than a

year ago. Its current-account deficit could

widen to 3% of

GDP

this fiscal year (which

ends in March), according to some fore-

casts. Indonesia’s could expand similarly.

These gaps would be easy to finance if

foreign investors were in an indulgent

mood. But they are not. As American inter-

est rates have risen, emergingmarkets have

looked less rewarding and more danger-

ous by comparison.

In response India’s government is

tweaking taxes and regulations to attract

more foreign capital and fewer foreign

goods. It will, for example, suspend a tax

on rupee-denominated “masala” bonds

sold outside India. It has also decided to

curb imports of inessential items, without

yet specifyingwhat thosemay be.

In Indonesia the government is encour-

aging state firms to dilute imported fuel

with biodiesel, extracted from local palm

oil. It has delayed big infrastructure pro-

jects. And it has increased import tariffs on

over 1,000 goods, including perfume,

stuffed toys and tomatoketchup. The life of

a rupiahwarrior is not without sacrifices.

In theory, such ad hocmeasures should

ing economies are enjoying a happy spell

of respectable growth and stable consum-

er prices. Only Pakistan has a combined

trade and fiscal deficit as devilish as Tur-

key’s orArgentina’s. Andnot evenPakistan

has anything like their double-digit rates of

inflation. India’s

GDP

grew by over 8% last

quarter, compared with a year earlier. In-

donesia’s expanded by over 5% (as it al-

most always does). And China’s grew by

over 6% (as it always does). Nor is a wide-

spread slowdown expected this quarter.

The trade war (see next article) has

soured themood inChina andHong Kong.

But China’s exports to America still grew

by over 13% in August, and the Canton

Emerging markets

Crushed and fried

HONG KONG AND SINGAPORE

Asia is not immune to emerging-marketwoe

Finance and economics

Also in this section

66 The trade war

67 Mooncake studies

67 Danske’s money-laundering scandal

68 Buttonwood: The yuan show

69 Narrow banking

69 Poverty estimates

70 Free exchange: We the shareholders

War wounds

Source: Thomson Reuters

Currency depreciation against the $

January 1st-September 17th 2018, %

60 50 40 30 20 10 0

–

Argentina

Turkey

Brazil

South Africa

Russia

India

Pakistan

Indonesia

Philippines

China