Rupiah Weakening Weighs on the Industrial Sector and Hinders Domestic Investment

The rupiah has weakened to around Rp 17,667 per US dollar on Monday, 18 May 2026, triggering serious concern among investors and domestic business players. The condition, reported by Money, could raise production costs, spur outflow of foreign capital, and increase the risk of labour layoffs.

This exchange rate volatility is seen as reducing business certainty in planning long-term business strategies. As a result, several companies are reportedly reconsidering their industrial expansion in Indonesia.

Bhima Yudhistira, Executive Director of the Center of Economic and Law Studies (CELIOS), offers views on the macroeconomic impact of the situation.

“The rupiah’s weakness sends a signal that macroeconomic conditions are challenging. As the exchange rate weakens further, business actors become concerned about rising costs of imported raw materials, imported industrial machinery, and logistics costs.”

According to Bhima, this situation raises the risk burden or risk premium for foreign investors.

“Investors are reconsidering entering Indonesia because the cost of investment is higher. Currency risk increases, bond yields rise, and bank borrowing costs may also rise,” said Bhima Yudhistira, Executive Director of the Center of Economic and Law Studies (CELIOS).

The currency uncertainty and volatility could also trigger capital flight abroad.

“If the exchange rate continues to swing as it is now, investors’ business plans will also change. As a result, there is potential for capital flight; investors who intended to enter may back out, while existing industries may delay expansion or even relocate,” said Bhima Yudhistira.

Other factor highlighted is the potential inflation that could erode purchasing power.

“Business players will surely see that a weaker exchange rate will affect purchasing power and inflation, so they begin to rewrite their business strategies in Indonesia,” he said.

Bhima also projects the movement of the rupiah if the government does not intervene promptly.

“If today the rate is around Rp 17,600 and the depreciation averages 0.5 per cent per day, by 9 June 2026 the rupiah could break above Rp 20,000 per US dollar,” said Bhima Yudhistira.

Although global pressures are the principal trigger, market sentiment remains influenced by domestic fundamentals.

“Who would want to invest in an economy deemed shaky or highly volatile as it is now?” asked Bhima Yudhistira.

In addition to investment issues, corporations relying on capital market funding also face heavy challenges.

“The path most affected is the pipeline financing. It becomes more expensive and more difficult. Even if companies continue expanding, they have to pay much higher costs,” said Bhima Yudhistira.

Tighter financing access is feared to disrupt the operational stability of labour-intensive industries.

“The financing channel is the most affected, more expensive and more difficult, so even if expansion occurs, they will have to pay at a higher price,” asserted Bhima Yudhistira.

The manufacturing sector is the most affected given its high dependence on imported components.

Bob Azam, Head of Labour Affairs at the Indonesian Chamber of Commerce and Industry (APINDO), provides details on the operational burdens faced by entrepreneurs.

“About 70 percent of manufacturing sector raw materials are still imported. In the past year, the rupiah has depreciated by more than 7 percent, and that directly hits production costs,” said Bob Azam, Head of Labour Affairs at APINDO.

Operational challenges are compounded by logistics disruptions and global geopolitical tensions.

“The business world is now forced to pursue efficiency and maximise productivity because cost increases are already double-digit, while prices cannot be raised arbitrarily,” said Bob Azam.

Although the spectre of staff reductions looms, such adjustments are seen as a survival step.

“This situation has actually been happening for two or three years already. So companies have started preparing efficiency measures long ago,” he said.

He emphasised the importance of adaptable labour protection systems for workers.

“More important is how workers who are laid off can quickly find new jobs. That is the best form of protection,” said Bob Azam.

Internal operational management and domestic supply chain efficiency are still considered optimisable.

“Improvements in productivity, logistics efficiency, strengthening cash flow, and reduction in energy costs are important factors to keep the business world viable,” he said.

Harmonious industrial relations become an important instrument in mitigating operational risks.

“If employers and workers can sit together to find solutions, difficult situations like now will be easier to face,” he said.