Something weird is happening in Indonesia… — Transcript

Full transcript

1. 0:00A few weeks ago, police raided a house in Jakarta.
2. 0:03Inside, they found 74 kilos of gold bars and $26 million in cash.
3. 0:08Nice.
4. 0:09The owner?
5. 0:10The top anti-corruption prosecutor of Indonesia.
6. 0:13The guy whose job is catching dirty money.
7. 0:16Now corruption stories come out of a lot of countries.
8. 0:19Usually nobody cares. But not this time.
9. 0:22Because this raid landed in the middle of something much bigger.
10. 0:26Indonesia's currency has crashed to its weakest level ever.
11. 0:30The stock market is down 26%.
12. 0:33One of the worst in Asia.
13. 0:34And billions of dollars
14. 0:36are leaving the country from foreign funds and from Indonesians.
15. 0:40who don't trust their own system anymore.
16. 0:41The government's answer is, well, quite a surprise.
17. 0:45They are locking the doors so the money can't get out.
18. 0:48In this video I'll show you what's really happening in Indonesia
19. 0:51and why the people who know this country the best are the ones panicking the most.
20. 0:56My name is Bertrand.
21. 0:57I've been doing business in Asia for 26 years.
22. 0:59I'm not guessing how things work here.
23. 1:01I deal with them every week. That's
24. 1:03why I created this channel to share my perspective from the inside.
25. 1:07If that's useful to you, subscribe.
26. 1:12For 20 years,
27. 1:13Indonesia has been the silent overachiever of Asia. Growth around 5%
28. 1:18almost every single year, with a regularity that most governments would kill for.
29. 1:22And it did it without the usual emerging market rollercoaster.
30. 1:26No default, no IMF drama since the 90s.
31. 1:29Just the same steady number year in, year out.
32. 1:33It's the fourth biggest population on earth, 280 million people.
33. 1:37Most of them are young enough that the country's best years
34. 1:40are still ahead of it. Adjust for purchasing power.
35. 1:43And Indonesia is already the seventh largest economy in the world. Bigger than France.
36. 1:48Most people have no idea.
37. 1:49the country sits on 42% of the world's nickel reserves.
38. 1:53The metal inside every EV battery.
39. 1:56For decades, Indonesia did what poor countries
40. 1:59always do: dig the ore, ship it raw,
41. 2:02watch someone else capture the profit.
42. 2:04But in 2020, it stopped. The export of raw nickel ore got banned.
43. 2:09You want Indonesian nickel,
44. 2:11then you build in Indonesia and you hire Indonesians to do it.
45. 2:15Every consultant said this would scare investors away.
46. 2:18Instead, billions flooded in. Funds
47. 2:22trusted this country with their money because of the discipline.
48. 2:25The 1998 crisis nearly killed Indonesia.
49. 2:28Out of that trauma, the country wrote itself
50. 2:31a rule: the budget deficit stays under 3% of GDP.
51. 2:35It's not a promise.
52. 2:37It's a law.
53. 2:37every government respected it for 20 years, including through Covid.
54. 2:41On paper, Indonesia is doing amazing.
55. 2:44It has a huge domestic market, relatively low public
56. 2:47debt, strategic resources and a young population.
57. 2:50Its economy is not collapsing in the traditional sense.
58. 2:54That is precisely what makes the current situation so interesting.
59. 2:58The economic foundations still look strong, but investors
60. 3:01are becoming less confident in the institutions managing them.
61. 3:05Since late 2024, the funds that spent 20 years buying
62. 3:09the Indonesia story have been selling it. First in silence. Now in the open.
63. 3:14and the speed of that exit
64. 3:15is the kind you normally only see when a country is about to break.
65. 3:19In June the rupiah crashed through 18,000 to the dollar,
66. 3:24the weakest level in its entire history,
67. 3:26weaker than 1998 when the crisis brought down a dictatorship.
68. 3:31So the government made a crazy move.
69. 3:33Parliament amended a financial law
70. 3:35on the surface, technical stuff, but buried inside it.
71. 3:39One clause:
72. 3:40Anyone who buys special bonds from Danantara,
73. 3:43the state's giant investment fund receives legal immunity,
74. 3:47immunity from criminal prosecution, civil lawsuits or tax investigations.
75. 3:53Think about who that offer attracts.
76. 3:55If your money is clean, immunity is worth nothing to you.
77. 3:58The market understood immediately.
78. 4:00And the rupiah started falling again the same week.
79. 4:03The stock market tells the same story.
80. 4:06Since Prabowo took office, the Jakarta index has lost
81. 4:09more than a quarter of its value.
82. 4:11In February, it went through a really bad crash.
83. 4:14The trigger was a press release from MSCI, the company
84. 4:18that decides which countries qualify as real investment markets.
85. 4:22They basically threatened to reclassify Indonesia as a "frontier" market. Frontier.
86. 4:28The same category as Kenya or Bangladesh. For the seventh largest economy on Earth.
87. 4:33That's tough. If that happens, every fund that tracks emerging market indexes
88. 4:39has to sell Indonesia. Because their own rules force them to.
89. 4:42Then Moody's joined in with a negative credit outlook.
90. 4:46One step before a downgrade.
91. 4:48foreign investors panicked
92. 4:49and have pulled about $8.9 billion out of Indonesian assets.
93. 4:53Some of this movement
94. 4:55might just be investors reducing exposure to emerging markets. But
95. 4:59domestic capital appears to be leaving on an even larger scale.
96. 5:03Indonesians themselves have moved 28.2 billion
97. 5:07out of their own country, three times more than the foreigners.
98. 5:10The people
99. 5:11with the best information about Indonesia are the ones running the fastest.
100. 5:16Add it all up, and the country's balance of payments,
101. 5:18which was sitting on a comfortable surplus two years ago has flipped to a $9 billion
102. 5:23deficit, the central bank is burning reserves to slow the fall.
103. 5:27$10 billion gone in the first half of this year alone.
104. 5:31It's very weird because it looks like a reaction
105. 5:34to a recession, but officially, Indonesia is still growing
106. 5:37above 5%, one of the best numbers of any major economy.
107. 5:42So either the smartest money in Asia has lost its mind…
108. 5:46Or it knows something about that 5% that you don't.
109. 5:49Let me explain.
110. 5:50Indonesia is a giant commodity exporter.
111. 5:53coal, palm oil and of course nickel.
112. 5:56when world prices for those swing, the economy should swing with them.
113. 6:00That's how it works everywhere.
114. 6:01Yet Indonesia's official growth prints 5% every quarter.
115. 6:05Boom years.
116. 6:06Crisis years, oil shock,
117. 6:07trade war. Always 5%.
118. 6:10An economy that never has a bad quarter is strange.
119. 6:13At some point you stop admiring it and start checking what's wrong.
120. 6:17Local economists did exactly that.
121. 6:19Last year,
122. 6:20a group of them requested a private meeting with the Finance Ministry to ask
123. 6:24how exactly the numbers were being produced.
124. 6:27Then came the first quarter of this year, the government announced 5.6%
125. 6:32growth, a three year high right in the middle of a currency collapse.
126. 6:36Dig into that release and you find that a big chunk of the growth
127. 6:40comes from unsold goods piling up in warehouses.
128. 6:43Stuff nobody bought yet, but counted as growth in the official math.
129. 6:48That's not really a boom.
130. 6:50It's more of a good PR. You also find manufacturing supposedly
131. 6:54booming while electricity use fell over the same period.
132. 6:57factories that produce more while consuming less power.
133. 7:01That would be a world first.
134. 7:03And you don't need a statistics degree to feel that something is
135. 7:07Just ask the Indonesian middle class. Or what's left of it.
136. 7:10In 2019, 57 million Indonesians qualified as middle class.
137. 7:15Today, fewer than 47 million do.
138. 7:18And no, they didn't get rich and move up.
139. 7:20They fell down into what the statistics office
140. 7:23politely calls the aspiring middle class.
141. 7:27Not poor.
142. 7:28Just one bad month away from it. That group now counts 142 million people.
143. 7:33More than half the country lives just below the middle-class line.
144. 7:37How does that happen in a country that grows 5% a year? Nobody can prove
145. 7:41these numbers are fake. That's not the point.
146. 7:44They might not even be.
147. 7:45And yes, I know the stock market has recovered a bit since the fall,
148. 7:49but the point is that
149. 7:51the people managing billions have stopped believing in the figures.
150. 7:55And once markets don't believe in your data, they price you like a country
151. 7:59with something to hide. Especially when they look at who's holding the wheel.
152. 8:03Prabowo came to power promising 8% growth.
153. 8:07His signature project is a giant free meal program
154. 8:10for 80 million schoolchildren and pregnant women.
155. 8:14The single program now eats around 10% of the entire state budget.
156. 8:18The idea itself is not irrational.
157. 8:21better childhood nutrition can improve health and long term productivity,
158. 8:25and Indonesia still faces serious problems with malnutrition.
159. 8:28The concern is the scale and speed of the rollout.
160. 8:32A useful social program can still become a fiscal and administrative risk.
161. 8:36If the government expands it faster than it can supervise
162. 8:40or finance it. Then war broke out in Iran.
163. 8:43Oil jumped above $90.
164. 8:45Indonesia imports most of its oil and subsidizes fuel at the pump.
165. 8:50So they watched both bills explode at once.
166. 8:53Remember the sacred 3% deficit rule from earlier.
167. 8:57The Finance Ministry ran the numbers: at these oil prices,
168. 9:01the deficit blows through it. A disciplined government would cut something.
169. 9:05For over a year, Prabowo refused to touch any of it.
170. 9:09Instead, the central bank started printing money to buy government debt.
171. 9:13Shortly after Prabowo installed his own nephew as its deputy governor. The country's
172. 9:18billionaires were strong-armed into buying so-called Patriot bonds.
173. 9:22They fired the respected finance minister who built
174. 9:25Indonesia's credibility over a decade. And the corruption?
175. 9:28You already know about the gold bars.
176. 9:30What you don't know is where the latest scandal landed.
177. 9:34inside the free meals program itself.
178. 9:36In June, the head of the agency running it was detained
179. 9:39for allegedly selling procurement rights to supply kitchens.
180. 9:43Faced with that, a government has two options. Rebuild
181. 9:46trust, or stop the money from leaving. Indonesia
182. 9:49picked the second one.
183. 9:50Since early 2025, Indonesia has been closing its financial doors one by one.
184. 9:56Watch the sequence.
185. 9:57Door number one: the exporters.
186. 9:59If you export commodities from Indonesia, the dollars you earn no longer
187. 10:03belong entirely to you.
188. 10:05You must park them in state-controlled banks for a minimum
189. 10:09of one year, with strict limits on what you can take out. The government's
190. 10:13logic is simple that's $80 billion in foreign currency.
191. 10:17It gets to keep inside the country.
192. 10:18Door number two: everyone else.
193. 10:21Nine months ago, an Indonesian business could buy up
194. 10:24to $100,000 without providing paperwork.
195. 10:28Today, that ceiling is $10,000. A 90%
196. 10:31cut. Door number three,
197. 10:33and this one shocked even people who thought they'd seen everything.
198. 10:36In May, Prabowo created a new state agency called DSI.
199. 10:41Its job is simple: become the mandatory middleman for Indonesia's commodity exports.
200. 10:47If you produce coal, palm oil, or nickel products
201. 10:50in Indonesia, you can no longer sell them to the world yourself.
202. 10:54You sell them to the state, and the state sells it for you. Of course,
203. 10:59they touch the dollars first.
204. 11:00Officially, it's about fighting tax avoidance.
205. 11:03In practice, the state just took control of the country's
206. 11:07biggest sources of foreign currency in the middle of a currency crisis.
207. 11:11You do the math.
208. 11:12Even the rating agencies can't figure out how this agency works.
209. 11:16Moody's cited the lack of clarity around DSI
210. 11:19as one of its main reasons for keeping Indonesia on negative watch.
211. 11:23Now bring this down to your level.
212. 11:26Say you source from Indonesia or you're eyeing it as your China alternative.
213. 11:31Your supplier's cash is now locked in a state bank. His costs move
214. 11:36with a currency that lost 14% in 18 months.
215. 11:39None of that shows up in the GDP numbers.
216. 11:41So where does it show up? In the payments, at Statrys,
217. 11:45that's the part we see firsthand, and there's a pattern.
218. 11:48when a country starts trapping money, the first people to react
219. 11:51are the local suppliers.
220. 11:53They start asking to be paid into accounts in Singapore or Hong Kong
221. 11:57instead of locally.
222. 11:58They push for bigger deposits upfront.
223. 12:01Your supplier isn't being difficult. He's protecting himself
224. 12:05from his own banking system.
225. 12:06So if your Indonesian partners suddenly change
226. 12:10how they want to get paid, that's the earliest warning about the country.
227. 12:14Last week, Parliament
228. 12:15just approved the creation of an international financial center.
229. 12:19it will probably be in Bali.
230. 12:20And it's designed to compete with Singapore, Hong Kong and Dubai.
231. 12:24The offer is 100% corporate tax reduction.
232. 12:27Golden visa holders who live there won't even count as Indonesian tax residents.
233. 12:32They'll have special courts.
234. 12:34The law went from first debate to final approval in under three weeks.
235. 12:38Indonesia is offering the world 0% tax
236. 12:42in a country where exporters can't touch their own dollars,
237. 12:46They are treating a trust problem the wrong way.
238. 12:48At this point, it would be easy to write Indonesia off.
239. 12:52That would also be a mistake.
240. 12:53None of the problems we have discussed erases the country's qualities.
241. 12:57And some investors believe the sell-off is exaggerated.
242. 13:01In July, while everyone was busy writing obituaries,
243. 13:04the Jakarta index climbed more than 10%.
244. 13:07Allan Gray, an investment fund known for buying exactly
245. 13:11what everyone hates, just made its first Indonesian investment ever,
246. 13:15and foreign direct investment hit a record in the second quarter, up 27% in a year.
247. 13:21Even the rating agencies disagree with each other.
248. 13:24While Moody's waves the red flag, S&P just
249. 13:27reconfirmed Indonesia's investment grade with a stable outlook.
250. 13:30So which side is right, the buyers or the sellers?
251. 13:34Maybe both.
252. 13:35Actually, they're just not making the same bet.
253. 13:38The buyers are betting that the assets are too cheap for a country this size.
254. 13:42The sellers are betting that the rules will keep changing under their feet.
255. 13:46Now everybody is looking at the next move the government will pull out.
256. 13:50There is still a credible positive scenario.
257. 13:52The government could clarify DSI's mandate, preserve the independence of Bank
258. 13:57Indonesia, keep the budget deficit within a believable path,
259. 14:01and make the foreign currency rules more predictable.
260. 14:04If it does that, Indonesia would stop damaging its credibility.
261. 14:08Moody's has given itself 6 to 12 months to decide whether Indonesia keeps
262. 14:12its investment grade.
263. 14:14But that's not the real emergency.
264. 14:16Indonesia took drastic measures in the last few months,
265. 14:20each one bigger than the last, each one buying less time.
266. 14:23Argentina spent decades on that treadmill.
267. 14:26So did Venezuela.
268. 14:27Indonesia is not there today, but once temporary capital controls
269. 14:31become permanent, removing them becomes politically and financially difficult.
270. 14:36Very few countries have stepped off it voluntarily. Because the moment
271. 14:41you loosen a control, the money you trapped runs for the exit
272. 14:45and you're back to square one with less trust than before.
273. 14:48So forget the growth number for a few months.
274. 14:50Over the next year, watch one thing: the doors.
275. 14:53If Jakarta starts reopening them, this becomes a rough patch in a great story.
276. 14:58If the doors keep multiplying,
277. 15:00you'll know which way this is going long before any official admits it.
278. 15:04If this video helped you see Asia more clearly, subscribe.
279. 15:08If you do business with Indonesia or you're watching this from Jakarta
280. 15:12and the picture on the ground looks different, tell me in the comments.
281. 15:15I read them all. See you in the next video.