Questioning the Surge in Bank Indonesia's Foreign Debt

Not only government debt, Bank Indonesia’s (BI) foreign debt has also been reported to have surged sharply. Based on BI’s report, the central bank’s foreign debt position at the end of June 2026 was recorded at USD 42.46 billion. This figure rose significantly by 72.11 percent compared to the end of 2025 position, which was recorded at USD 28.29 billion.

This striking surge in foreign debt certainly raises concerns in the public sphere. Amid the dynamics of global uncertainty that have yet to recover, a significant increase in foreign debt is certainly not without risk.

Compared to the same period in 2025, when the increase in BI’s foreign debt was only around 2.5 percent, the current increase of 72.11 percent is very large. When the rupiah exchange rate weakens, the increase in BI’s foreign debt is indeed inseparable from its role as a shock absorber, which aims to withstand pressure on the rupiah while preventing a decline in foreign exchange reserves.

Based on data, of BI’s total foreign debt of USD 42.46 billion, around USD 16.38 billion is in the form of debt securities, USD 17.35 billion is in the form of cash and deposits owned by non-residents, and USD 8.73 billion is the allocation of Special Drawing Rights (SDR) from the International Monetary Fund (IMF).

Looking at the composition of BI’s foreign debt, it appears that the increase is related to monetary operations and the flow of foreign funds into BI instruments. The problem now is to what extent the increase in BI’s foreign debt is then followed by an increase in foreign exchange reserves as expected? This question is important to discuss in more depth.

Risk

Unlike government foreign debt, whose utilisation is used to build infrastructure or finance various social programmes, BI’s foreign debt is drawn in connection with its main function as the monetary authority, namely maintaining the stability of the rupiah exchange rate. As the central bank, BI has the main mandate to ensure that the rupiah exchange rate does not continue to deteriorate.

Throughout the first half of 2026, the rupiah faced various massive depreciation pressures due to various global sentiments. In fact, the rupiah briefly touched its weakest record at around Rp18,178 per US dollar. The war in the Middle East region, rising world oil prices, and sluggish global market conditions have had an impact on Indonesia. Inevitably, the rupiah exchange rate has also been eroded.

In conditions where the rupiah exchange rate continues to weaken and a crisis of confidence begins to emerge among investors regarding Indonesia’s economic conditions, BI must ensure that rupiah financial assets and domestic investment remain attractive and profitable. Otherwise, foreign capital flows will reverse out (capital outflow) and further add pressure to the national foreign exchange market.

The strategy developed by BI to boost the rupiah exchange rate again is inevitably to offer attractive returns to investors. The way is that BI has pursued a fairly aggressive pro-market monetary operation policy. The increase in BI’s foreign debt is largely contributed by monetary instruments, such as the sale of Bank Indonesia Rupiah Securities (SRBI) and the offering of debt securities purchased by non-resident investors.

In other words, the debt drawn by BI is not a reflection of a thinning state treasury to finance consumptive spending. The debt is a consequence of policies that must be taken to withstand the turmoil of the rupiah exchange rate so that it does not fall deeper. In this context, BI’s foreign debt is an unavoidable consequence of efforts to maintain rupiah stability.

Impact of Debt

In the short term, BI’s move to draw high amounts of debt has proven to provide benefits. The process of rupiah weakening can to some extent be prevented from getting worse. However, the step taken by BI is like taking a stimulant. The effect tends to be momentary and does not necessarily last in the long term.

In the short term, the strategy developed by BI has indeed succeeded in reducing volatility and maintaining foreign exchange reserves. The return of foreign investor confidence has also provided a breath of fresh air for the domestic stock and bond markets.

However, the step taken by BI is not without risk. BI’s manoeuvre of drawing high amounts of foreign debt will nonetheless make Indonesia bear a burden that is not light in the long term.

First, the risk of an increase in the debt interest burden. Issuing instruments with attractive yields to lure foreign capital certainly demands compensation for interest payments that are not small. The interest burden of around 7.4 to 7.7 percent for SRBI can ultimately reduce liquidity room for manoeuvre and must be managed carefully so as not to burden the state budget indirectly.

Second, the risk of sudden capital reversal. High dependence on foreign funds in short-term instruments such as SRBI makes our economy very sensitive to changes in global monetary policy, especially the policy of the United States central bank (The Fed). When global sentiment deteriorates, it is not impossible that these foreign investment funds will be withdrawn in a short time. This condition risks creating severe shocks to liquidity and the rupiah exchange rate.

Third, vulnerability to currency risk. Foreign debt always carries exchange rate risk. If the rupiah weakens structurally again in the future, the value of obligations denominated in foreign currencies will certainly swell. Ultimately, this condition risks draining foreign exchange reserves to meet payment obligations.

Future Efforts

An increase in BI’s foreign debt under certain conditions may be a necessity. The decision to increase debt withdrawal inevitably has to be taken.