Rupiah Under Continued Pressure: Is the Fiscal Deficit to Blame?
The stability of the Rupiah exchange rate does not depend solely on the monetary policies of Bank Indonesia or the Minister of Finance, but is also heavily determined by the government’s credible and sustainable fiscal management. This was stated by Rita Santoso, Rector of the ASIA Institute of Technology and Business Malang, in response to the pressures still shadowing the Rupiah amidst global economic uncertainty and rising geopolitical tensions.
As is widely known, many parties suggest that fiscal deficit limits are contributing to the weakening exchange rate, amid rumours that the government may raise the fiscal deficit limit above 3%. Rita acknowledged that financial markets will closely scrutinise the government’s ability to maintain fiscal health through budget deficit control, prudent debt management, and the effectiveness of state spending in driving economic growth.
She noted that this is not solely the responsibility of the Minister of Finance, but a duty of the government as a whole. “Regarding state finances, the Minister of Finance has endeavoured to keep them healthy. State expenditure remains within safe limits, the deficit is below 3%, and debt is at 40% of GDP, which is normal for an economy of our size,” Rita explained in her notes shared on Instagram.
However, she assessed that maintaining market confidence is not the task of the Ministry of Finance alone. Market trust is built through the entirety of governance—how programmes are implemented, how policies support one another, and how the government proves its ability to fulfil its promises. “That is the responsibility of the entire government, not just one ministry,”
Rita observed that the Indonesian economy across various regions is still functioning, with various government programmes distributing funds to the public and driving consumption. However, this situation is often accompanied by various rumours and negative issues. In response to discussions regarding a potential change in the Minister of Finance, she questioned whether the current challenges truly stem from fiscal management.
Rita emphasised that a primary indicator for investors, businesses, and the public is future expectations. She believes Indonesia’s current issue is not a lack of ideas for progress, but rather a lack of readiness in execution. To achieve sustained high per-capita income growth, she stated that Indonesia requires four main pillars: robust institutions, a healthy and educated population, and adequate infrastructure.
Of these four pillars, Rita noted that institutions are often considered the most fundamental. Robust institutions imply secure property rights, laws and contracts enforced fairly, and limited power to ensure business is conducted equitably. “Without this, people will be reluctant to do business, invest, or innovate,” she concluded.