The week of 22 to 28 May 2026 will be remembered as one of the most\nturbulent in recent memory for the Indonesian economy, with global\ngeopolitical shocks colliding with domestic vulnerabilities to produce a\npicture of both resilience and acute strain. At the centre of the storm\nwas the escalating US-Iran military confrontation in the Strait of\nHormuz, which sent global oil prices surging toward USD 96 per barrel,\nbattered emerging market currencies, and forced policymakers in Jakarta\ninto a series of rapid and sometimes improvised responses.<\/p>\n
The Rupiah Under Siege<\/strong><\/p>\n The most visible sign of distress was the Indonesian rupiah, which\nweakened to historic lows throughout the week, trading as low as Rp\n17,873 in offshore markets and nearing the psychologically significant\nRp 18,000 level onshore. The currency\u2019s decline was not merely a\nreflection of dollar strength; economists were quick to point out that\nthe rupiah had depreciated against ten Asian currencies this year,\nincluding the Singapore dollar and the Malaysian ringgit, exposing\ndeeper domestic vulnerabilities. Bank Indonesia\u2019s widening current\naccount deficit \u2013 reported at 1.1 per cent of GDP in the latest quarter,\nup from 0.7 per cent \u2013 compounded the pressure, as foreign currency\noutflows exceeded inflows from exports and services.<\/p>\n Bank Indonesia\u2019s 50-basis-point rate hike to 5.25 per cent, announced\nearlier in May, provided limited relief. Trimegah Securities\u2019 chief\neconomist Fakhrul Fulvian argued the currency should trade far closer to\nRp 16,800-17,000 given Indonesia\u2019s economic fundamentals, but stressed\nthat Bank Indonesia cannot stabilise the rupiah alone without\ncoordinated fiscal support. Senior economist Wijayanto Samirin delivered\na sterner warning, cautioning that the real danger lies not in import\ncosts or debt service but in eroded market confidence \u2013 evoking the\npsychological spiral of 1998, though most analysts were careful to note\nthat today\u2019s fundamentals remain structurally sounder. Finance Minister\nPurbaya Yudhi Sadewa dismissed the weakness as illogical given\nIndonesia\u2019s 5.61 per cent GDP growth in the first quarter of 2026 \u2013 the\nstrongest expansion since the third quarter of 2022 \u2013 but international\nrating agencies expressed concern over the controversial establishment\nof PT Danantara Sumberdaya Indonesia (DSI), the new state-owned export\nentity, warning of potential trade disruptions and capital outflows.<\/p>\n Global Energy Shocks and Their Domestic Fallout<\/strong><\/p>\n The US-Iran confrontation, which entered its third month during the\nweek, saw American forces launch multiple strikes near the Strait of\nHormuz, downing Iranian drones and targeting missile launchers and\nmine-laying vessels. Iran retaliated by striking a US airbase in Kuwait,\nprompting Kuwait to activate its air defences. The IRGC reported that it\nwas supervising vessel transits through the strait, and the Netherlands\ndeployed a minesweeping vessel to a NATO task force with potential\nHormuz deployment. Oil prices swung wildly \u2013 at times surpassing USD 96\na barrel before dipping on news of diplomatic overtures, only to surge\nagain \u2013 while President Trump threatened to attack Oman if it attempted\nto control the waterway.<\/p>\n For Indonesia, the consequences were direct and severe. As a net oil\nimporter, the country faces mounting fuel subsidy costs and imported\ninflation. Pertamina\u2019s subsidiary PHE temporarily halted production at\nIraq\u2019s West Qurna field, losing up to 100,000 barrels per day and\nraising concerns about the company\u2019s full-year lifting targets. The\ngovernment extended its work-from-home policy for civil servants by two\nmonths \u2013 citing a near 9 per cent reduction in Pertalite consumption in\nApril \u2013 and the Coordinating Ministry for Economic Affairs urged\nregional governments to strengthen local resource-based economies.\nCoordinating Minister Airlangga Hartarto also confirmed the Rp 7.8\ntrillion second-quarter stimulus package, which features transport\ndiscounts, a 1.5 per cent final income tax rate for authors, and\nexpanded vocational training programmes.<\/p>\n Sumatra\u2019s Blackout and the Grid\u2019s Fragility<\/strong><\/p>\n The week also laid bare the fragility of Indonesia\u2019s electricity\ninfrastructure. On the evening of 22 May, a fault on the 275 kV Muara\nBungo-Sungai Rumbai transmission line in Jambi \u2013 attributed to severe\nweather \u2013 triggered a cascading blackout across Jambi, West Sumatra,\nRiau, North Sumatra and Aceh, affecting roughly 13.1 million customers\nand disrupting telecom networks operated by Telkomsel, XL Smart and\nIndosat Ooredoo Hutchison. PLN\u2019s president director Darmawan Prasodjo\npersonally oversaw the recovery effort, which restored power to 8.35\nmillion customers by the morning of 23 May, though full normalisation\ntook several days.<\/p>\n The incident drew immediate comparisons to the 2019 Java-Bali\nblackout and prompted calls for urgent action. Public policy analyst\nAgus Pambagio warned that delays in the 500 kV SUTET transmission\nprojects, combined with land acquisition bottlenecks and cross-regional\npermitting challenges, risked worsening supply as demand grew. Puskepi\u2019s\nSofyano Zakaria urged development of a stronger Sumatran power backbone,\nciting international precedents from Australia and the United Kingdom.\nNorth Sumatra Governor Bobby Nasution demanded PLN prevent a recurrence\nahead of the AFF U-19 tournament, while industry experts warned the\noutage was already damaging Indonesia\u2019s data centre investment pitch,\nwith concerns that investors could redirect commitments to Malaysia or\nThailand. Consumer rights group YLKI insisted PLN must provide automatic\ncompensation without complex claims processes, citing energy ministry\nregulations.<\/p>\n Rare Earth Smuggling and Illegal Mining<\/strong><\/p>\n In the Riau Islands, the Forest Area Clearance Task Force and the\nIndonesian Navy thwarted what authorities described as a trillion-rupiah\nillegal mineral smuggling operation, seizing 390 tonnes of rare earth\nelements and radioactive materials at Batam\u2019s Kodaeral IV Terminal.\nInvestigators from the Attorney General\u2019s Office are examining potential\ncorruption, abuse of power and document forgery. Separately, the\nMinistry of Forestry named four Chinese nationals as suspects in an\nillegal gold mining case in Nabire, Central Papua, where nearly 200\nhectares of forest had been cleared and ten units of heavy machinery\nseized. The suspects face up to fifteen years\u2019 imprisonment under the\nForest Destruction Prevention Act. The Ministry of Energy and Mineral\nResources meanwhile revealed it was probing seven illegal mining\noperations across Kalimantan, Java, Sumatra and Maluku, with potential\nstate losses of Rp 857.55 billion.<\/p>\n Holiday Traffic, Domestic Consumption and\nTourism<\/strong><\/p>\n Against this turbulent backdrop, the Eid al-Adha and Pancasila Day\nlong weekend provided a vivid reminder of Indonesia\u2019s domestic economic\nengine. Jasa Marga recorded 321,039 vehicles departing Jabotabek \u2013 a\n19.62 per cent rise from normal \u2013 while traffic on the Trans-Java toll\nroads surged by as much as 94.9 per cent at the Cikampek Utama gate. KAI\nsold more than 911,000 tickets for the holiday period, with the\nGambir-Yogyakarta route the most popular, and the Compartment Suite\nservice posting a 79 per cent year-on-year rise in passengers for the\nfirst four months of 2026. Ragunan Zoo welcomed 16,000 visitors on the\njoint-leave day alone, while InJourney Airports forecast three million\npassengers across its 37 airports during the holiday period.<\/p>\n Tourism was not without its shadows. The fatal collapse of a\nsuspension bridge at Cunca Wulang Waterfall in Labuan Bajo, which killed\ntwo Austrian tourists, prompted the West Manggarai regent to order a\nfull safety audit of all sites in the region and reignited concerns\nabout infrastructure maintenance at what is designated a national super\npriority destination. Meanwhile, heavy traffic at Tanjung Priok forced\nJakarta Governor Pramono Anung to issue a public apology after container\nhandling operations at Depo Budi Dharma caused extensive congestion in\nthe Priok-Cilincing corridor, underscoring persistent weaknesses in the\ncapital\u2019s logistics infrastructure.<\/p>\n Investment, Energy Transition and Digital\nEconomy<\/strong><\/p>\n Several significant investment announcements punctuated the week.\nIndonesia\u2019s first wind energy-to-electricity conversion project in\nBatam, led by PT McDermott Indonesia and backed by Bappenas, secured a\nUSD 240 million investment commitment projected to create 7,000 jobs.\nHSBC China unveiled a USD 4 billion credit facility to support Chinese\nclean energy firms expanding into Indonesia, aligned with the country\u2019s\nestimated USD 97 billion clean energy investment needs by 2030.\nDanantara Investment Management reported 85 entities had qualified for\nthe second phase of the Waste-to-Energy programme \u2013 a 254 per cent rise\nfrom the first round \u2013 while PHE, PGN and Pupuk Indonesia signed a Joint\nStudy Agreement to develop Carbon Capture and Storage technology for\nlow-carbon ammonia production. South Korea introduced a temporary visa\nwaiver for Indonesian tourist groups, a modest but welcome signal for\nthe tourism sector\u2019s recovery.<\/p>\n Outlook<\/strong><\/p>\n The weeks ahead will test Jakarta\u2019s capacity to hold these disparate\npressures together. The trajectory of US-Iran negotiations will\ndetermine whether oil prices ease or push toward the USD 100 mark that\nseveral analysts warned could become a sustained new floor, with\ndamaging consequences for Indonesia\u2019s subsidy bill and current account.\nThe rupiah\u2019s stability hinges on whether the government can deliver the\nfiscal-monetary policy coordination that economists have repeatedly\ndemanded, and whether the controversy surrounding PT Danantara\nSumberdaya Indonesia can be managed without further unsettling\ninternational investors. On the structural side, the Sumatra blackout\nhas placed energy grid reform firmly back on the national agenda, while\nthe Batam wind project and the HSBC credit facility suggest that the\nenergy transition pipeline is deepening \u2013 provided governance and\nimplementation keep pace. Indonesia\u2019s GDP growth fundamentals remain\ngenuinely solid, but turning that macro headline into durable household\nprosperity will require the government to translate stimulus\nannouncements into ground-level delivery with a speed and quality that\nthe People\u2019s Schools project, still only 63 per cent complete, has yet\nto demonstrate.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/this-week-in-the-indonesian-economy-22-28-may-2026-1780052592",
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"sponsor": "Okusi Associates",
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