Indonesia's Foreign Exchange Reserves Decline in May, Is It Still Safe?

Bank Permata Chief Economist, Josua Pardede, suggests that the decline in Indonesia’s foreign exchange reserves since the beginning of 2026 requires serious attention. However, he emphasised that this condition should not yet be interpreted as a signal of a fundamental weakening of the nation’s external resilience.

According to the latest data from Bank Indonesia, Indonesia’s foreign exchange reserve position at the end of May 2026 was recorded at US$144.9 billion, or equivalent to Rp2,631 trillion (assuming an exchange rate of Rp18,158 per US dollar). This figure represents a contraction of US$1.3 billion compared to the position at the end of April 2026, which reached US$146.2 billion.

According to Josua, the current foreign exchange reserve position remains at a relatively strong level. “The US$144.9 billion position at the end of May 2026 is still capable of financing more than five months of imports and government external debt payments. This is still well above international adequacy standards,” he told Media Indonesia on Monday (8/6).

Josua explained that the decline in foreign exchange reserves must be scrutinised in terms of its cause and speed. He identified three layers of vigilance that markets and monetary authorities should observe:

First, the market is not only watching the size of the foreign exchange reserves but also the downward trend occurring amidst the weakening Rupiah and corrections in the domestic financial market. Currently, Indonesia is at a level equivalent to 5.5 months of imports, meaning it is not yet considered to be in a danger zone. However, Josua warned that this declining trend should not persist for too long, as it could affect the risk perception of foreign investors.

Furthermore, Josua emphasised the importance of the effective use of foreign exchange reserves in maintaining exchange rate stability. Investors look not only at the nominal amount but also at how Bank Indonesia (BI) dampens volatility without having to rigidly deplete reserves to maintain a specific exchange rate level.

“Investors will be more at ease if they see consistent coordination between fiscal and monetary policies. The government needs to maintain State Budget (APBN) discipline and strengthen the supply of foreign exchange from the export sector,” he added.

In conclusion, Josua asserted that the primary message from the May 2026 data is that Indonesia’s foreign exchange reserves remain strong, but the downward trend serves as an early warning for policymakers to remain vigilant against global market dynamics.

There are two agreed-upon steps to strengthen fiscal and monetary coordination to support Rupiah stability. The Government and Bank Indonesia (BI) have agreed to increase the remuneration or interest on government funds placed at the central bank. Additionally, BI will strengthen the interest rate structure of pro-market monetary instruments to ensure domestic asset instruments remain attractive for capital inflows.

Josua also noted that Panda Bonds could reduce dependence on the US Dollar (USD) and provide access to the Chinese financial market. While Indonesia’s trade balance continued to record a surplus throughout 2025, reflecting external sector resilience, national exporters will face significant challenges due to the obligation for full placement of Export Proceeds (DHE) in state-owned banks (Himbara) starting 1 January 2026. Finally, the Bank Permata Chief Economist noted that the 5.4% economic growth target in the 2026 Draft State Budget (RAPBN) will be very difficult to achieve without significant momentum.