Rupiah Weakness Reflects Fundamental Domestic Economic Challenges

REPUBLIKA.CO.ID, JAKARTA – The rupiah’s weakening against the US dollar is not solely due to global currency strength, but also reflects ongoing fundamental challenges in the domestic economy that need urgent strengthening. Senior economist at the Centre for Financial, Economic, and Development Studies at Binawan University, Farouk Abdullah Alwyni, said global pressures do affect many developing countries’ currencies. However, he noted that several global currencies have actually strengthened against the US dollar over the past one to two years. “Empirical evidence shows many global currencies have actually strengthened against the US dollar,” Farouk said in a written statement on Sunday (24 May 2026). Currencies such as the Malaysian ringgit, euro, and Swiss franc have strengthened against the US dollar, indicating that the rupiah’s weakness is not solely due to external factors like a strong dollar but also linked to domestic economic fundamentals. Farouk believes rupiah stability cannot be maintained solely through foreign exchange market interventions or interest rate hikes. While monetary policy is crucial for short-term stability, the rupiah’s medium- and long-term strength depends on the robustness of the real sector and national productivity. He stressed the importance of boosting household purchasing power and protecting the middle class as the mainstay of national consumption and economic growth. According to Farouk, the middle class and aspiring middle class are the main pillars of national consumption, tax revenue, and domestic demand stability. “A decline in this group would ultimately weaken economic growth and the rupiah’s resilience,” he said. Moreover, he said the government needs to build a more competitive and fair tax system, particularly for the middle class, UMKM, and job-creating sectors. A tax system that overly suppresses purchasing power risks weakening domestic consumption and narrowing middle-class growth. Conversely, a sound tax policy is believed to strengthen sustainable consumption, savings, and investment. Farouk also urged the government to accelerate deregulation and de-bureaucratisation, strengthen exports and tourism foreign exchange, and promote strategic import substitution industries. He said high dependency on imported raw materials is one reason for strong US dollar demand, making the rupiah vulnerable to external pressures. “Currency stability is fundamentally tied to confidence in production capacity, a conducive business climate, and a nation’s economic competitiveness,” Farouk said.