Informed optimism as global conflicts intensify
Indonesia’s domestic foundations remain solid while the Israel–US and Iran tensions escalate, testing the economy through two channels: financial market volatility (the US dollar strengthening, risk-off sentiment) and potential rises in energy and logistics costs. Optimism, however, should be data-based. Domestic fundamentals remain sound: Indonesia’s economy is forecast to grow 5.11% in 2025 and 5.39% year-on-year in Q4 2025. The external balance also provides a cushion: January 2026 trade balance posted a surplus of US$0.95 billion, while foreign exchange reserves remain at high levels. On prices, inflationary pressures require attention: February 2026 inflation was 4.76% year-on-year with core inflation at 2.63% year-on-year, indicating that price volatility is mainly driven by supply-disruption-sensitive components, energy, and distribution.
From this, the main challenge is to maintain stability so that global waves do not turn into domestic storms. In the short term, conflicts typically push market participants toward safe assets, causing the US dollar to strengthen and emerging market currencies to be more volatile. The Rupiah could come under pressure not only because of fundamentals but also due to market psychology. At the same time, higher oil prices and shipping costs can trigger imported inflation, such as higher transport costs, increased raw material prices, and certain foods pushed up via distribution costs. If both channels meet, purchasing power could weaken, margins for businesses could narrow, and growth could stall.
In this context, policy plays a decisive role. Bank Indonesia has held the BI Rate at 4.75% with a focus on maintaining exchange rate stability and guiding inflation toward the target. Going forward, monetary policy should remain data-dependent, i.e., rate restraint should be maintained as long as inflation expectations are anchored and Rupiah volatility can be damped through a mix of instruments. Stability of the Rupiah should not rely solely on the “rate”; a more effective approach is a combination of foreign exchange interventions (spot and DNDF), monetary operations, deepening the FX money market, and expanding hedging access for the business sector. The principle is not to pin the exchange rate to a particular figure, but to reduce excessive volatility so that businesses can plan prices, production, and financing reasonably.
Nevertheless, monetary stability will not be robust if supply-side inflation remains unaddressed; therefore the government must win upstream: curb inflation from supply and distribution sides, especially ahead of HBKN when demand rises. Practical steps that could be implemented immediately include (1) securing stocks and ensuring smooth distribution of strategic staple foods across regions; (2) data-driven price-based open market operations and market interventions in vulnerable areas; (3) strengthening TPIP/TPID coordination for quick and uniform responses; (4) energy risk mitigation through diversification of supply, efficiency, and more targeted subsidy policies to protect vulnerable groups without long-term fiscal burden.
Informed optimism also requires micro-level discipline. Households should prioritise essential purchases, reduce impulse buying, and strengthen emergency funds even if small. Micro, Small, and Medium Enterprises (MSMEs) should tighten cash flow, manage stock, and adjust prices with value-based strategies (bundling, sizing, services), rather than simply raising numbers. Public and private institutions can reduce costs without compromising core services through energy efficiency and streamlined processes.
In conclusion, global crises may heat up, but Indonesia does not have to follow suit. The key is to maintain trust through measured work, for BI to stabilise the Rupiah and guide inflation expectations, and for the government to ensure continued supply of food, energy, and distribution; society and businesses respond calmly and productively. Grounded optimism arises not from rhetoric but from observable indicators: declining Rupiah volatility, controlled core inflation, food prices returning to normal post-HBKN, smooth distribution, and sustained business activity. If anchors of stability are strong, citizens have rational reasons to remain optimistic and national productivity can strengthen amidst uncertainty.
To be truly operational, there are five work packages that can be used immediately as a national checklist. First, data-based price stabilisation for food: local governments publish daily prices of key commodities, set intervention thresholds, then drive market operations and cross-regional distribution before prices spike. Second, targeted protection of purchasing power: social assistance and food aid accelerated for vulnerable groups, disbursed non-cash for speed and accountability, while preventing leakages.
Third, strengthening energy resilience: energy saving in transport and industry encouraged through incentives, and diversification of supply to reduce dependence on vulnerable routes. Fourth, supporting MSME productivity: facilitate access to working capital financing, cash-flow management training, and promotion of payment digitisation to lower transaction costs.
Fifth, one message for policy communication: BI and Government to publish risk maps, stabilisation steps, and announcements of supply readiness regularly, so rumours do not overpower data. The Government should also monitor MBG programmes that rely heavily on APBN funds to ensure fiscal health. If these five packages are implemented consistently, the public will not only be invited to be optimistic but will have concrete reasons to work, strive, and grow.
Ultimately, global crises always test Indonesia’s governance and structural economy. When coordination is strong, interventions are targeted, and information is clear, external shocks do not automatically become domestic crises. We can place stability as a prerequisite, not an obstacle; stability empowers businesses to invest with confidence.