Rupiah Breaches Rp 17,500, Foreign Reserves and Capital Flows in the Spotlight
JAKARTA, KOMPAS.com - The weakening of the rupiah exchange rate to breach the Rp 17,500 per US dollar level is seen not merely as short-term market volatility, but as a signal of the fragility of the domestic economic structure amid increasingly heavy global pressures.
Economist from the Indonesia Strategic and Economic Action Institution (ISEAI), Ronny P Sasmita, assesses that the current rupiah depreciation is the result of a combination of external pressures and fundamental issues domestically.
Ronny describes the current situation as a “perfect storm” that brings together global turbulence with domestic vulnerabilities.
According to him, the pressure on the rupiah is triggered by several global factors, ranging from geopolitical conflicts in the Middle East to the high interest rate policies of the US central bank, the Federal Reserve.
The conflict in the Strait of Hormuz between the US and Iran is cited as one of the main triggers for the surge in global oil prices.
This condition directly impacts Indonesia as a net oil importer.
At the same time, high US interest rates are causing global investors to withdraw capital from developing countries, including Indonesia, and redirect their funds to US dollar-based assets deemed safer.
However, Ronny believes that the rupiah’s issues do not only come from abroad.
He highlights the structure of Indonesia’s economic growth, which is deemed too reliant on domestic consumption and government spending, while investment and productive sectors are not yet strong enough to support long-term growth.
“Market doubts regarding the transparency of the stock exchange and the sustainability of state spending become an additional burden for rupiah-denominated assets,” states the report.
Ronny also criticises Bank Indonesia’s intervention measures, which he deems not yet effective enough in curbing the rupiah’s weakening.
According to him, BI is in a difficult position because it must maintain economic growth while preserving exchange rate stability.