Energy Subsidies, the Rupiah, and Stability

Every time energy prices rise or the rupiah weakens, our response is almost always the same: absorbing the impact, expanding energy subsidies, and calming the markets. On the surface, this appears to be rational policy. Stability is maintained. Inflation is controlled. Panic subsides. Yet, this is precisely where the problem lies. We manage stability too often without sufficiently understanding what we are actually preserving.

In various public debates, stability is often reduced to numbers: low inflation, growth around 5%, and a relatively controlled exchange rate. Even more extreme narratives emerge, suggesting that a rupiah depreciation to certain levels, such as 20,000 rupiah per US dollar or 22,000 rupiah per US dollar, would automatically plunge Indonesia into crisis.

Such narratives sound convincing. But analytically, they are misleading. The exchange rate is not the primary cause of crises. It is a reflection of the economic structure. In my previous research (Simatupang, 2007), I demonstrated that financial system stability does not necessarily reflect the true strength of the economy. Without effective intermediation to the productive sector, stability becomes merely a static condition, not a driver of transformation.

Two decades later, the same pattern persists. In my article in Kompas (2017), I warned that economic stability often conceals an ‘iceberg’ phenomenon: surface calm can mask structural pressures such as inequality and vulnerabilities that develop slowly.

Meanwhile, in Simatupang’s (2019) piece in Kompas, it was emphasised that global economic dynamics are increasingly uncertain, and external shocks are no longer exceptions but part of the system. This means that economic resilience can no longer rely on assumptions of external stability. Yet in policy practice, we still respond as if every shock is a temporary event.

When the rupiah weakens, panic ensues. Certain figures become psychological thresholds, as if crossing them would cause the economy to collapse. In reality, what determines the outcome is not the number, but how the economic structure responds to the pressure.

When the rupiah weakens, import costs rise. Energy becomes more expensive. Fiscal pressures mount, and the need to maintain stability intensifies. In this situation, the government reverts to the same pattern: dampening the impact through energy subsidies.

This is where the link between the exchange rate and energy subsidies becomes clear. Energy subsidies are not just instruments for stabilising prices. They are instruments for stabilising a structure that is not yet strong enough.

In my most recent article in Media Indonesia and Bisnis Indonesia (2026), I describe this condition as the ‘stability trap’, where the economy appears stable but does not change sufficiently to become more resilient. We maintain balance but do not create leaps. As a result, every external shock, whether from energy or the exchange rate, always elicits the same response.

We do not solve the problem. We repeat it. This is the cycle we do not realise. We preserve stability through energy subsidies. We respond to rupiah weakening with the same approach. We soothe symptoms but do not strengthen the structure.

And in that process, we build an illusion. The illusion that as long as macro indicators look good, our economy is strong. The illusion that as long as the rupiah does not weaken too far, we are safe.

The illusion that today’s stability reflects long-term resilience. In reality, as I have shown in various writings, stability without transformation is not strength. It is deferred stagnation.

The question then becomes more fundamental: Do we truly want to strengthen the economy? Or do we just want to keep it looking stable? Because as long as we continue responding to turbulence in the same way, our biggest problem is not energy prices or the exchange rate. Our biggest problem is that our economic structure is not yet strong enough to stand without supports.

And until that changes, every rupiah weakening will always cause a stir, every energy price increase will always trigger panic, and every energy subsidy policy will always return.

Not because we do not know the solution. But because we have not truly changed how we understand stability. And without that change, the stability we preserve today is not the foundation of strength, but an illusion we continue to nurture.