Habibie Reduced US Dollar Exchange Rate from Rp16,800 to Rp6,550 – Four Key Strategies
Jakarta, CNBC Indonesia - The rupiah’s exchange rate against the US dollar has continued to weaken, reaching Rp17,800, marking the most significant depreciation in history.
Looking at Indonesia’s history, the country once emerged from a rupiah depreciation crisis through a remarkable rescue operation during the administration of the third President, Bacharuddin Jusuf (BJ) Habibie.
Tasked with managing the 1998 Monetary Crisis, Habibie successfully tamed the US dollar, which had surged to Rp16,800 per dollar, and brought it down to around Rp6,550 by the end of his term in 1999.
This more than 60% reduction in rupiah depreciation did not happen overnight. It was achieved through a series of macroeconomic strategies and bold policies implemented by Habibie’s government.
According to national economic history records, here are Habibie’s key strategies to curb the US dollar’s dominance:
- Independence of Bank Indonesia (BI)
One of the most crucial structural steps taken by Habibie was separating Bank Indonesia from government intervention. Through Law No. 23 of 1999 on Bank Indonesia, BI became an independent institution free from external interference, including the president.
With this independence, the monetary authority could objectively focus on its primary task: achieving and maintaining rupiah stability through monetary instruments without political pressure.
- Bank Restructuring and Recapitalisation
The 1998 crisis crippled the domestic banking sector due to a surge in non-performing loans (NPLs). To address this, Habibie’s government established the National Banking Rehabilitation Agency (BPPN).
Through the BPPN, financial sector cleanup was conducted via bank recapitalisation programmes, liquidating unhealthy banks (suspended operations), and restructuring major corporate debts.
Four state-owned banks were merged into one, now known as Bank Mandiri. This step gradually restored global investor confidence in Indonesia’s financial system.
- High Interest Rate Policy
Habibie also tackled the crisis by issuing Bank Indonesia Certificates (SBI), which were offered at high interest rates to regain public trust in banks.
This encouraged the public to save again, reducing money circulation. Thanks to the SBI, interest rates fell from 60% to single digits, restoring confidence in the banking sector.
- Price Controls on Essentials
Habibie also controlled prices of essential commodities. The aeronautical technocrat deemed staple goods vital, so he maintained subsidized electricity and fuel prices to keep them affordable during the crisis.
However, this policy was controversial, as Habibie made an unusual statement, urging the public to fast during the crisis to conserve resources.
Real Impact on Indonesia’s Economy
The combination of monetary and fiscal measures proved effective. The rupiah, which had been severely weakened, gradually strengthened below Rp10,000 and even touched the psychological level of Rp6,550 per US dollar.