The Rupiah's Price, The Price of Risk

Governor of Bank Indonesia Perry Warjiyo stated on 22 April 2026 that the rupiah is in an undervalued condition. This statement may be convincing, even reassuring. He gives the impression that what is happening is merely a temporary deviation from the fundamental value. The issue from the market’s perspective is: is the value in question a market price?

However, it is at this point that caution must begin. The market, no matter how often it is criticised, is rarely entirely wrong. What more often happens is the opposite: our models lag behind reality. The more fundamental question is not whether the rupiah is cheap, but whether the definition of “cheap” is still relevant in a risk structure that has changed.

From a development perspective, as emphasised by Simatupang two decades ago (2007) in his research titled “Bank Recapitalization, Bank Performance and Real Sector Lending: An Analysis of Indonesia’s Economic Recovery from the Crises of 1997-1998”, the exchange rate is not merely a monetary variable that can be explained by inflation, interest rates, or the balance of payments. It is a reflection of something deeper, namely the economic structure, policy credibility, and what is often overlooked is how the world assesses a country’s risk.

When the Model Is Still Logical, It Turns Out It Has Shifted

Technocratically, the undervaluation argument is not difficult to construct. PPP (Purchasing Power Parity), REER (Real Effective Exchange Rate), or BEER (Behavioral Equilibrium Exchange Rate) produce a deviation of 6-10 percent from the fundamental value, and this is a reasonable figure.

Because it still shows a moderate deviation from the fundamental value. Inflation is controlled, growth is relatively stable, and domestic yields remain competitive. But within the model framework, the rupiah does appear “too cheap”.

The problem is that the market never assesses fundamentals in a sterile form. It always adds one variable that is often underestimated in domestic discourse, namely risk. In more open terms, today’s rupiah is not simply undervalued; it is traded at a discount. And that discount is not an anomaly, but the price of the uncertainty felt by investors.

Here, the term mispricing becomes problematic. What we consider a market error may actually be a new equilibrium point, a price that has internalised a higher risk premium.

The World Is Not Neutral Towards Emerging Markets

For two decades, globalisation has shaped the belief that capital will automatically flow to countries with good fundamentals. That is an assumption that has now collapsed.

Geopolitical fragmentation, friend-shoring practices, and rising global tensions have changed the logic of capital flows. Investors no longer simply chase yield; they chase security. In this context, emerging markets, including Indonesia, are no longer at a neutral point. They must “pay more” to convince the market.

The consequence is simple but fundamental: the risk premium increases and tends to persist. In an asymmetric global system, a country’s price is not entirely determined by itself. This reality is not new, but it now presents itself in a more emphatic form.

Energy Transition and Exchange Rate

Optimism about Indonesia’s position in the nickel supply chain is often positioned as a new support for the exchange rate. This narrative is not wrong, but it is also incomplete.

The energy transition is not just a story about export opportunities. It also brings needs for technology imports, large investments, and industrial restructuring. Dependence on fossil energy has not fully subsided, while global energy price volatility remains high.

In this configuration, the need for foreign exchange actually increases. In other words, the energy transition is a double-edged sword: it promises a future, but in the short term adds pressure to the exchange rate, something often overlooked in static models.

Old Problems That Have Not Been Resolved

If global factors explain part of the pressure, the rest comes from domestic sources. High logistics costs, bureaucratic rigidity, and suboptimal productivity still pose structural barriers.

Progress has indeed occurred, but not enough to fundamentally shift the economic structure. As a result, a familiar paradox emerges, namely growth exists, but its quality is limited. In such conditions, the rupiah becomes fragile, highly dependent on short-term capital flows, easily pressured by shocks, and difficult to strengthen sustainably.

From Stability to Transformation

At this point, the undervaluation narrative loses its clarity. When the rupiah’s weakening is read as a temporary deviation, policy responses tend to stop at reactive instruments, such as market interventions, interest rate adjustments, and liquidity management.

However, if the weakening reflects a structural shift, then the thinking framework must be changed. The issue is no longer how to dampen volatility, but how to lower the underlying risk premium.

This means that the policy agenda cannot stop at stabilisation. It must move towards transformation: ensuring policy consistency that the market can trust, strengthening institutional credibility, accelerating the resolution of structural barriers, managing the energy transition without adding external pressure, and gradually reducing dependence on short-term capital flows.

In the end, stability is not the ultimate goal, but a prerequisite. Without transformation, stability will only be a temporary respite before the next pressure emerges again.

Conclusion

Today’s rupiah is not just a number on the market screen. It is a reflection of an economy strong enough to grow, but not yet strong enough to be fully trusted without a discount.

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