Rupiah Depreciation and the Rural Economy
On foreign exchange trading screens, the exchange rate of the Rupiah often appears as merely fluctuating numbers. However, in rural areas, the depreciation of the Rupim is more than just a matter of exchange rates and financial markets. The weakening of the Rupiah impacts the rising price of fertiliser, swelling diesel costs, increasingly expensive livestock feed, and the gradual erosion of rural purchasing power. When the Rupiah weakens against the US Dollar, the rural economy is facing significant pressure.
Recently, pressure on the Rupiah has intensified. Despite the domestic market being closed for two days, international markets traded the Rupiah against the US Dollar at the level of Rp 17,600 on Friday, 15 May 2026. This condition occurred alongside a strengthening US Dollar and high risk premiums for Indonesia. Bank Indonesia has subsequently conducted large-scale interventions in the foreign exchange market to maintain domestic currency stability.
The problem is that the Rupiah’s depreciation arrives at a time when the rural economy has not yet fully recovered and continues to face various structural pressures. Dependence on imported goods, low added value in agricultural products, limited access to productive financing, and weak logistics infrastructure make villages the group most vulnerable to exchange rate volatility.
Villages are the foundation of the Indonesian economy. Most of the national food production originates from rural areas. When villages are shaken, national economic stability is truly threatened. Ironically, the narrative regarding the weakening Rupiah is often too centred on financial markets, foreign investors, and foreign exchange reserves. Discussions regarding its impact on the grassroots economy in villages remain relatively minimal, even though rural communities are the group with the least economic cushion to face rising prices.
The depreciation of the Rupiah has a chain effect. When the Dollar strengthens, import costs rise. Indonesia still relies on various imported raw materials, including fertiliser, pesticides, wheat, soybeans, and livestock feed. Consequently, production costs in the agricultural and livestock sectors also increase.
Farmers are the first group to feel the impact. The price of non-subsidised fertiliser has surged because some of its raw materials are imported. Pesticide prices have also risen, as have the prices of agricultural machinery spare parts, which frequently utilise foreign components. In such a situation, farmers’ profit margins are increasingly pressured. The issue is that rising production costs are not always accompanied by an increase in the selling price of harvests. Farmers are often in a weak position within the distribution chain. When production costs rise, they lack the power to determine prices. As a result, profits shrink, and in many cases, turn into losses.
This phenomenon creates a paradox: villages serve as food producers, yet the welfare of farmers lags behind. When the Rupiah weakens, production burdens rise, but the farmers’ exchange value does not automatically improve.
On the other hand, the weakening Rupiah also triggers inflationary pressure, particularly on consumer goods with high import content. Rural communities, with their relatively limited incomes, become the group most sensitive to the rising prices of basic necessities. This condition becomes even heavier because the income structure of rural communities tends to be unstable. Many rural households depend on seasonal income from harvests or informal work. When the price of necessities rises while income remains stagnant, purchasing power is directly eroded.
Data from the Central Bureau of Statistics shows that the poverty rate in rural areas remains much higher than in urban areas. The percentage of the poor in urban areas in September 2025 was 6.60 per cent, down from March 2025 at 6.73 per cent. Meanwhile, the percentage of the poor in rural areas in September 2025 was 10.72 per cent, down from March 2025 at 11.03 per cent. This indicates that rural communities are still highly vulnerable to economic volatility. This means that when the Rupiah weakens and prices rise, socio-economic pressure in villages can increase faster than in urban areas. Villages have a higher level of vulnerability because the majority of the population falls into the lower-middle income group.
In this context, the weakening of the Rupiah is not merely a monetary issue, but also a matter of social welfare. An interesting phenomenon is that the impact of the Rupiah’s depreciation in villages is not always negative. For certain export-based sectors, the weakening Rupiah can actually increase income. Coffee, cocoa, and palm oil farmers, along with several other export commodities, can benefit because selling prices in Rupiah increase.
However, these benefits are not automatically felt by all rural communities. Firstly, not all farmers are connected to export markets. Secondly, export profits are often enjoyed more by large companies or intermediaries than by smallholder farmers. Thirdly, the increase in production costs due to imports remains a burden that farmers must bear. Therefore, the weakening Rupiah creates new inequalities in rural areas. Groups connected to the global market may gain, while the majority of smallholder farmers face increasing living costs.
Amidst this situation, villages are actually facing a more fundamental problem: low local economic resilience. Many villages do not yet have a strong and independent economic ecosystem. Economic activity still relies on primary commodities with low added value. Most agricultural products are sold in raw form. Villages serve as suppliers of cheap raw materials, while the largest profits are enjoyed by the downstream sectors.