Indonesia’s Rupiah Hits New Lows Amid Political and Economic Concerns
Indonesia’s currency, the rupiah, has recently fallen to its lowest value against the US dollar since the 1998 Asian financial crisis, primarily due to apprehensions surrounding President Prabowo Subianto’s fiscal policies. The rupiah dipped by up to 0.5% to reach a level of 16,640 against the dollar, inching closer to its historic low of 16,800 from June 1998, a year marked by political upheaval and the fall of long-time dictator Suharto.
Central Bank Interventions
In response to the depreciation, Bank Indonesia has taken measures to stabilize the currency. The central bank announced interventions in both FX and bond markets, aiming to sustain the rupiah’s exchange rate and balance foreign exchange demand and supply. According to the bank, fluctuations in the rupiah are mainly influenced by uncertain global factors, which include US tariff policies, the Federal Reserve’s potentially aggressive monetary stance, and ongoing geopolitical tensions.
Investor Concerns Over Fiscal Policies
Despite the central bank’s focus on external influences, investor unease is largely attributed to Prabowo’s substantial government expenditure. His flagship initiative, which provides free meals to schoolchildren and pregnant women, is estimated to cost around $28 billion annually, stressing the nation’s financial framework. This has led to an unexpected budget deficit in the early months of the year, compounding worries among investors.
Economic Indicators Worsen
Concerns are further amplified by signs of economic deceleration. Analysts suggest that if the economy continues to slow, the central bank might face pressure to lower interest rates, which could put additional downward pressure on the rupiah. “The overarching concern is the perception of a government that is less fiscally responsible,” noted Viktor Szabo, a fund manager at Aberdeen Investments.
Currency Performance and Market Impact
This year, the rupiah has performed poorly compared to other major Asian currencies, declining nearly 3% against the dollar. Furthermore, the Jakarta stock index has dropped by approximately 14% in dollar terms since the beginning of 2025. The country is also grappling with increased competition from inexpensive Chinese imports, with some companies, like Sritex, a leading garment manufacturer, forced to shut down operations.
Lessons from Past Crises
Indonesia’s economic landscape continually reflects the scars of the past currency crisis, which started with the Thai baht and spread across Asia, leading to significant economic turmoil and international bailouts. In the aftermath, policymakers have been diligent in amassing foreign exchange reserves and have been proactive in market interventions to prevent a recurrence of such crises.
Sovereign Wealth Fund Under Scrutiny
Attention is also directed toward the new sovereign wealth fund, Danantara, which has appointed notable figures like billionaire investor Ray Dalio and former Thai Prime Minister Thaksin Shinawatra as foreign advisers. However, there are rising concerns regarding political influences over its management, which might add to market volatility in light of aggressive government spending initiatives.
According to JPMorgan analysts, “There remains significant uncertainty regarding the execution and management of the fund, which could lead to continued market volatility, exacerbated by the government’s ambitious fiscal plans.”
As the situation unfolds, investors will be closely monitoring these developments, balancing fiscal strategies and external influences that might shape Indonesia’s economic future.
