BUSINESS – The Indonesian rupiah has depreciated to its weakest point since the 1998 Asian financial crisis, trading at 16,641 per US dollar—a 0.5% decline that underscores growing investor apprehension regarding Indonesia’s fiscal policies and economic trajectory. Concerns have intensified over President Prabowo Subianto’s expansive fiscal initiatives, notably a proposed US$30 billion annual free lunch program. Such policies are projected to push the budget deficit closer to the legal cap of 3% of gross domestic product (GDP), raising alarms about the nation’s fiscal sustainability.
The stock market has mirrored these anxieties, with Indonesia’s benchmark index entering a bear market in February following a 14% decline in dollar terms. Foreign investors have withdrawn over US$2 billion from the equity market this year, reflecting diminished confidence in the country’s economic stability.
In response, Bank Indonesia has intervened in the foreign exchange and bond markets to stabilize the rupiah, emphasizing the nation’s robust economic fundamentals, including approximately 5% growth, low inflation, and manageable foreign debt levels. Despite these measures, the currency’s depreciation persists, prompting the central bank to maintain vigilance and readiness to implement further stabilization strategies.
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The establishment of Indonesia’s new sovereign wealth fund, Danantara, has also contributed to market unease. While the fund aims to manage national investments and consolidate state-owned enterprises, concerns regarding transparency and governance have emerged. The appointment of notable advisors, including Bridgewater Associates founder Ray Dalio, has not fully alleviated investor skepticism.
External factors, such as a strengthening US dollar driven by anticipated Federal Reserve interest rate hikes and geopolitical tensions, have further pressured the rupiah. Analysts warn that a prolonged currency depreciation could lead to increased prices for imported goods, higher costs for industries reliant on foreign raw materials, and a potential decline in consumer purchasing power.
As Indonesia navigates these economic challenges, the government’s ability to balance ambitious fiscal programs with prudent financial management will be critical in restoring investor confidence and stabilizing the national currency.
