Gen Ho Chi Minh

For 28 years, Indonesians have been told a history that portrays them as having been duped: that the rupiah collapsed from Rp2,400 to Rp16,000 in 1998 because of George Soros’s short selling. Yet according to Wall Street records cited in this thread, the story is actually the exact opposite. Soros did not short the rupiah; instead, he bought it as its value fell, or bought the dip, ultimately losing more than US$1 billion, or around Rp15 trillion, because he misread Indonesia’s political situation and was caught up in the fallout from the BLBI crisis. This is described as one of the wildest financial plot twists in Indonesia. In early 1997, Soros did indeed attack the Thai baht through the Quantum Fund. A US$3.5 billion short-selling bet sent the Thai currency plummeting and netted Soros around US$750 million. However, in October 1997, as the rupiah began weakening from Rp2,400 to Rp3,000 per US dollar, Soros’s analysts arrived in Jakarta. After reviewing the foreign exchange reserves and the IMF’s US$33 billion bailout package, Soros’s chief trader, Stanley Druckenmiller, concluded that Indonesia’s situation differed from Thailand’s. They considered the rupiah cheap and saw an opportunity to buy. Rather than attacking the rupiah, Soros took a long position, buying large amounts of it. They initially invested US$300 million. As the price continued to fall, they added to their position, or averaged down, until their total investment reached US$1.8 billion. They were confident the rupiah would strengthen again to below Rp3,000 per US dollar. However, the Wall Street investors were considered far too naive in their reading of the New Order’s political situation. They did not understand the enormous foreign-currency debts held by conglomerates or the banking problems involving the regime’s cronies at the time. Soros’s calculations ultimately fell apart. Suharto was seen as reneging on his commitments to the IMF, while Bank Indonesia was said to have secretly printed trillions of rupiah through the BLBI scheme to bail out banks owned by the ruling family. The rupiah continued to plunge, reaching Rp16,650 per US dollar. Druckenmiller even admitted that he had been convinced Indonesia’s situation was different, but it turned out not to be. When the rupiah collapsed, he struggled to exit his investment because it was too large, and it ultimately became frozen. His losses on the rupiah position exceeded US$1 billion, wiping out all the profits he had previously made in Thailand. Even major Wall Street investors like Soros can suffer huge losses by trying to buy the rupiah as its value keeps falling. Yet because the regime at the time needed a scapegoat to cover up the BLBI problems and ballooning private debt, the media instead portrayed Soros as the mastermind behind the destruction of the people’s livelihoods. History is often written by politicians who want to wash their hands of responsibility, while financial markets do not care how big an investor’s name or reputation is.