Two decades ago, the Asian financial crisis revealed Indonesia to be the weakest link. While the trouble started in Thailand, it was the collapse of Jakarta's financial system that generated full-blown contagion.
Indonesia experienced another reckoning in 2013 as the Federal Reserve's "taper tantrum" savaged emerging markets. Again, its frailties surged to the surface, unnerving neighbors. Fast-forward five years and President Joko Widodo's economy is back on the brink. And, once again, it could be a chaos transmission mechanism at the heart of the globe's most dynamic region.
That is the finding of an Oct. 23 Institute of International Finance report on systemic risk among emerging nations. IIF researcher Reza Siregar concludes that Indonesia suffers more acutely than neighbors from "concentration risk" that "increases the scope for contagion."
He is referring to a banking sector, and an entire economy, overly exposed to a single counterparty, China. "Indonesia flows are quite sensitive to China shocks," Siregar warns.
Thanks to a heavy reliance on capital inflows into government debt, corporate IOUs and stocks, Indonesia is again proving, in Siregar's words, "more sensitive to shifts in risk appetite than dollar flows." In other words, vulnerable to panicky punters seeking shelter as China's economy grows wobbly.
Here, the role of Donald Trump's escalating trade war is unmistakable. As Warren Buffett famously observed, "you only find out who is swimming naked when the tide goes out." As capital zooms out thanks to the U.S. president's trade war, investors are again finding a whole lot of skinny dipping in Jakarta.
My point is not to denigrate Indonesia's progress since Asia's 1997-1998 crash. Much of the heavy lifting was done by Susilo Bambang Yudhoyono. Over 10 years in power, from 2004 to 2014, the general-turned-president curbed the military, attacked corruption, reduced bureaucracy, increased transparency and upped spending on infrastructure and education.
SBY, as he is known, clamped down on radical Islamic elements responsible for a 2002 Bali attack that killed more than 200. These efforts, along with microeconomic retooling, confounded skeptics betting the archipelago was careering toward failed statehood. SBY bequeathed Widodo, known as Jokowi, an investment-grade economy. McKinsey thinks Indonesia will be a Group of Seven power by 2030.
That trajectory is in question, though, as Trump's trade war transports Asia back to 2013. Virtually no serious economist sees a return to the late 1990s. But this year's 12% plunge in the rupiah betrays vulnerabilities investors thought Indonesia had left behind. The central bank has hiked short-term interest rates 1.5 percentage points this year to tame markets to 5.75%.
Indonesia has some company in today's turmoil. Though conditions vary, India and the Philippines suffer from plunging currencies and risks to foreign direct investment flows. The common thread with Jakarta is twin deficits in government budgets and the current account. These no-confidence votes from markets speak to the level of reform skimping around the region.
After a few splashy reforms to open sectors like aviation and insurance, India's Narendra Modi blotted his copybook with demonetization -- a rash bid to fight corruption by eliminating high-values bank notes, which disrupted the economy. The comparisons with Philippine President Rodrigo Duterte are even more compelling as Jokowi heads into next year's re-election battle.
Granted, Jokowi is not torching Indonesia's global image with a bloody drug war or Trump-like crazy talk. But Benigno Aquino passed Duterte an economy on the move, only to see his successor squander the momentum. Will history view Jokowi in a similar light?
Jokowi's 2014 election mandate mirrored Duterte's: accelerate upgrades. Topping Jokowi's to-do list: faster job creation; more inclusive growth; raising global competitiveness; ramping up infrastructure investments; betting big on stronger human capital to spur innovation.
Voters embraced Jokowi's man-of-the-people persona, developed while serving as mayor of Surakarta in Central Java, and later governor of Jakarta. His clean, hands-on leadership seemed beyond reproach. Now 57, Jokowi was the first president who did not hail from a dynastic family or the military.
And Jokowi has had some triumphs: building giant port, bridge, road and power projects; putting more public services online, including government procurement and tax collections, to cut out middlemen; and a tax amnesty to prod tycoons to repatriate funds.
Yet Jokowi too often goes easy on the economic nationalism clouding Indonesia's vast resources sector. In speeches ahead of the April election, he touts success in wresting control of the nation's nickel, copper and natural gas deposits from foreign companies. There is merit to Jakarta keeping more of the spoils of underground treasures, but it is a balance. While a winning issue with voters, Jokowi risks repelling foreign investors.
A key question is how Jokowi spends the next six months. The 2019 election looks like a rematch of 2014, when Jokowi bested Prabowo Subianto, a former general who heads the opposition Gerindra party. Since then, Jokowi has struggled to meet the 7% gross domestic product growth he promised. Today's roughly 5% pace is not fast enough to reduce poverty in the nation of 250 million people. Nor is it sufficient to avoid the "middle-income trap."
To join the G-7 within 12 years, Jokowi must act boldly now to attack graft, improve the investment environment, enhance skills, and expand infrastructure. He requires more foreign capital.
Things are about to get harder as Trump's China assault racks up collateral damage. Arguably, it is good news that Jakarta's trade balance swung to a surplus of $230 million in September. That enabled the central bank to leave rates unchanged last week after tightening at the previous three policy meetings.
Yet the one-month surplus reflects waning domestic demand and moves to block certain imports. It is no long-term respite for Jakarta's imbalances. The chronic current-account deficit makes Indonesia too reliant on fickle foreign investors' appetites -- just as in 1997 and 2013. The IIF projects a deficit of 2.1% of GDP in 2019. An improvement from this year's peak of 2.4%, but not enough to cheer markets.
That is especially so as China's travails send capital to sturdier markets. Jokowi still has time to regain the reformist momentum. But too much remains of the cracks from financial crises past, reviving the same old danger of collapse. Deja vu, indeed.
William Pesek is an award-winning Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades." He was given the 2018 prize for excellence in opinion writing by the Society of Publishers in Asia, for his work for the Nikkei Asian Review.