Investor Confidence Tested as Rupiah Weakness Deepens Beyond 1998\nLevel<\/p>\n
Jakarta. Indonesia\u2019s weakening rupiah is becoming less a story about\nglobal turbulence and more a test of investor confidence in the\ncountry\u2019s economic management, economists said, as the currency fell\nbeyond levels seen during the 1998 Asian financial crisis.<\/p>\n
The rupiah dropped to a record Rp 17,514 per US dollar on May 12,\nmaking it one of Asia\u2019s weakest-performing currencies this year and\nintensifying scrutiny of Indonesia\u2019s fiscal discipline, policy\ncoordination, and dependence on foreign capital inflows.<\/p>\n
While government officials have attributed the depreciation largely\nto seasonal and external factors, analysts warned that markets were\nincreasingly reacting to domestic policy signals and regulatory\nuncertainty.<\/p>\n
Indonesia More Exposed<\/p>\n
Regional currency data comparing end-March levels in 2025 and 2026\nshowed the rupiah weakened 2.5% against the dollar, underperforming most\nASEAN peers. Only the Philippine peso and Vietnamese dong posted steeper\ndeclines, while the Singapore dollar, Malaysian ringgit, and Thai baht\nstrengthened.<\/p>\n
Denni Puspa Purbasari, an economist at Gadjah Mada University, said\nIndonesia was being hit harder than many emerging markets because\ninvestors were closely assessing the country\u2019s economic fundamentals and\npolicy direction.<\/p>\n
\u201cGlobal pressures are affecting almost all emerging-market\ncurrencies, but Indonesia is facing deeper pressure because markets are\npaying close attention to the credibility of its policies and\ninstitutions,\u201d Denni said.<\/p>\n
She said Indonesia\u2019s heavy reliance on oil imports continued to\nincrease dollar demand, while the country\u2019s current account deficit left\nit dependent on foreign capital inflows to stabilize the rupiah.<\/p>\n
Markets Sensitive to Policy Signals<\/p>\n
According to Denni, investors are also increasingly sensitive to\ngovernment communication, particularly when economic messages appear\ninconsistent or poorly coordinated.<\/p>\n
\u201cCommunication that creates uncertainty, appears ad-hoc, or signals\nweak coordination between institutions can undermine confidence in\nIndonesia\u2019s economic management,\u201d she said.<\/p>\n
Fellow Gadjah Mada University economist Wisnu Nugroho said\nIndonesia\u2019s relatively shallow financial markets had amplified the\nrupiah\u2019s volatility compared with neighboring economies.<\/p>\n
\u201cThe domestic investor base is still limited compared to some\nregional peers, making the rupiah more vulnerable during periods of\nglobal risk aversion,\u201d Wisnu said.<\/p>\n
He added that the US Federal Reserve\u2019s \u201chigher for longer\u201d\ninterest-rate policy had narrowed the yield gap between Indonesian\ngovernment bonds and US Treasuries, encouraging investors to shift funds\ninto dollar-denominated safe-haven assets.<\/p>\n
Wisnu also warned that unpredictable regulatory changes and\ninconsistent policymaking had increased Indonesia\u2019s perceived investment\nrisk.<\/p>\n
\u201cRapid or inconsistent policy changes can raise the country\u2019s risk\npremium and trigger capital outflows,\u201d he said.<\/p>\n
Government Remains Confident<\/p>\n
Despite the currency\u2019s sharp depreciation, Finance Minister Purbaya\nYudhi Sadewa dismissed comparisons with the 1998 crisis, when the rupiah\ncollapsed to around Rp 16,800 per dollar amid economic and political\nturmoil.<\/p>\n
\u201cOur conditions are nowhere near as bad as in 1998. Our economic\nfundamentals are now very strong,\u201d Purbaya said in Jakarta on\nWednesday.<\/p>\n
He stressed that exchange-rate stabilization falls under the\nauthority of Bank Indonesia, which has repeatedly blamed external\npressures such as Middle East geopolitical tensions and dividend\nrepatriation by foreign firms for the rupiah\u2019s weakness.<\/p>\n
Coordinating Economic Minister Airlangga Hartarto also pointed to\nseasonal dollar demand linked to the hajj pilgrimage and external debt\nrepayments.<\/p>\n
Still, some economists warned that prolonged weakness could begin\nfeeding into inflation, import costs, and fiscal risks.<\/p>\n
Josua Pardede, chief economist at Bank Permata, said the current\ndepreciation was driven more by short-term sentiment than by structural\ncollapse, arguing that Indonesia\u2019s economic fundamentals remain\nsignificantly stronger than during the Asian financial crisis.<\/p>\n
\u201cIn real terms, the rupiah is still undervalued,\u201d Josua said.<\/p>\n
However, he warned that keeping the currency above Rp 17,500 for an\nextended period \u2013 particularly if oil prices remain above $100 per\nbarrel \u2014 could sharply increase risks to inflation, import prices,\ncapital flows, and the state budget.<\/p>\n
According to him, rising oil prices have intensified market concerns\nbecause they could increase Indonesia\u2019s import burden and strain fiscal\nstability. At the same time, a stronger dollar has encouraged capital\noutflows from emerging markets.<\/p>\n
Domestic sentiment has also weighed on the rupiah. Earlier this year,\nMoody\u2019s Ratings and Fitch Ratings revised Indonesia\u2019s credit outlook,\naffecting global investors\u2019 appetite for Indonesian stocks and\nbonds.<\/p>\n
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