17 - Devaluation of the Rupiah (1978)

Summary

Introductory Note: Devaluation is the official decreasing by the government of the value of a given country's currency against a foreign currency. If a currency's value decreases solely due to market forces and entirely without government intervention, the decline in a currency's value is called depreciation not devaluation. On 15 November 1978, the Government of Indonesia officially announced the devaluation of the Rupiah against the U.S. dollar from Rp415 per US$ to Rp625 per US$. The Rp415 rate had been in effect since 1971. Various explanations were given to the public about the policy. One way of conveying these explanations was through a television interview that took place on 22 November 1978. The interviewer was Drs. Sumadi, M.EC., a graduate in economics at an Australian university, who would later become the Director General for Radio, Television and Film, and then go on to serve as Indonesian Ambassador to Mexico, a post which also covered Cuba and Panama. The government prepared several anticipatory moves before making the decision. Two of the most important things involved were the sufficient stockpiling of foreign exchange reserves and food supply (rice) all across the country. Therefore after the devaluation announcement took place, every request for foreign exchange and/or food could immediately be fulfilled.

Sumadi: Good evening to you all. As we are all aware, on 15 November 1978, the government introduced a new policy in the economic and monetary fields, and since then there have been a multitude of reactions from the public. Therefore, I now invite you to observe a question and answer session with the Coordinating Minister for Economy, Finance and Industry, and Chairman of BAPPENAS, Bapak Prof. Dr Widjojo Nitisastro.

Pak Widjojo, even though the government has explained the policy that was announced on 15 November 1978, many parties in our society do not yet fully understand it or the reasons behind it. It's therefore timely for Pak Widjojo to re-emphasize the essence of the policies that were stipulated on 15 November.

Answer: Thank you, Pak Sumadi. On 15 November, the government put in place a new policy, which relates to foreign exchange. As we all understand, when we trade with another country, our currency, the rupiah must be converted into a foreign currency. That's why there is something called the exchange rate. For instance, previously one U.S. dollar equaled Rp415.