Weak Rupiah, Strangled Industries: Time for Indonesia to Exit the Vulnerable Economy
The recent weakening of the rupiah and volatility in the IHSG should not be dismissed as mere market fluctuations. This is a loud alarm that Indonesia’s economic structure remains fragile and overly vulnerable to global pressures.
When the rupiah approaches Rp17,500 per US dollar and the IHSG faces pressure from the outflow of foreign capital, the real issue is not just external sentiment. The main problem is that the national economic foundation is not yet strong enough to support long-term resilience.
Indonesia is still too dependent on short-term foreign capital, imported raw materials, and exports based on raw commodities. As a result, every time there is global turmoil, the rupiah comes under pressure, the financial markets are shaken, and the real sector is affected.
This is not just an economic cycle. This is a structural issue.
Today, more than 70% of Indonesia’s imports are still dominated by raw materials and capital goods. This means the national industry is still highly dependent on imported components to produce. When the rupiah weakens, production costs immediately soar.
The food and beverage, pharmaceutical, textile, electronics, automotive, petrochemical, and national manufacturing industries face real cost pressures. Meanwhile, people’s purchasing power is not yet strong enough to absorb price increases.
Business players are ultimately in a difficult situation: raise prices and the market weakens, hold prices and margins erode. In the short term, companies may still survive. But in the long term, this pressure can slow business expansion, hinder new investments, and restrain job creation.
What is worrying is that this situation occurs as the global economy enters a new phase of uncertainty. High interest rates in the United States are still holding back global capital flows. Geopolitical conflicts are driving volatility in energy and food prices. New trade wars are emerging. The world is moving towards economic protectionism and competition for strategic supply chains.
The question is: is Indonesia’s economic structure ready to face this situation? The answer: not entirely.
Indonesia’s manufacturing contribution to GDP is currently only around 18%-19%. Yet in the early 1990s industrialisation era, it once reached more than 28%. This shows that premature deindustrialisation remains a major challenge.
Ironically, while other countries race to strengthen high-tech industries, Indonesia is still too comfortable exporting raw materials and enjoying short-term commodity booms.
We cannot continue to rely solely on coal, nickel, or CPO price cycles to support national economic resilience. Therefore, today’s rupiah pressure must become a momentum for a major correction in the direction of national economic development.
First, Indonesia must dare to enter the advanced stage of industrialisation. Downstreaming must not stop at smelters and semi-finished products. We must enter battery, petrochemical, semiconductor, advanced manufacturing, and innovation-based digital economy industries.
Second, import substitution must be implemented seriously and realistically. So far, import substitution has too often been mere jargon without upstream industry development. The business world needs competitive local raw materials, not just obligations to use TKDN without supply chain readiness.
Third, the domestic financial market must be strengthened so as not to be too dependent on short-term foreign funds. When foreign investors exit, our market is too easily volatile. The domestic investor base must be expanded through strengthening pension funds, insurance, sovereign wealth funds, and national retail investors.
Fourth, the government needs to provide cheap and easy access to hedging for medium-sized industries and SMEs. Many business players actually want to protect themselves from exchange rate risks, but the instruments are still expensive and complicated.
Fifth, regulatory reforms must be accelerated. The business world needs legal certainty, licensing certainty, and policy direction certainty. In a globally uncertain situation, policy stability is the main capital to maintain market confidence.
Sixth, the state must start focusing on building a productivity-based economy, not just consumption. So far, Indonesia’s economic growth has been too reliant on domestic consumption. Yet advanced countries grow due to industrial productivity, technology, and innovation.
Indonesia has all the prerequisites to become a major economic power: abundant natural resources, demographic bonus, large domestic market, and strategic geopolitical position. But without the courage to strengthen the national industrial structure, we will continue to be an economy that is easily shaken every time the dollar strengthens and foreign capital exits.
Therefore, today’s rupiah challenge must be read more deeply. This is not just about the exchange rate. This is a test of the direction of national economic development. We need an economy that is not only growing high on paper, but also strong, productive, shock-resistant, and capable of creating added value domestically. If not, Indonesia will continue to be large as a market but not truly strong as an economic power.