The weakening of the Rupiah beyond IDR 17,000 due to Middle East geopolitical turmoil and capital flight demands a more credible policy anchor. Precise synergy between Bank Indonesia and the Ministry of Finance is absolutely necessary to stabilize market expectations, maintain fiscal discipline, and ensure the availability of foreign exchange liquidity in order to protect national macroeconomic fundamentals from external shocks.
The Bloomberg terminal screens this week displayed a figure that sent chills through our monetary authorities: the Rupiah officially settled above the IDR 17,000 per US dollar level. For the public, this may merely appear as a number on the business page. However, for manufacturing industries dependent on imported raw materials and for a government carrying the burden of energy subsidies, it is a deafening alarm bell.
We are not merely facing seasonal volatility, but rather a double storm originating from escalating geopolitical tensions in the Middle East and the prolonged tightening of global liquidity.
Tensions in the Strait of Hormuz have pushed Brent crude prices above US$100 per barrel. For Indonesia, now a net oil importer, every increase in oil prices delivers a direct blow to the trade balance and fiscal burden. When energy commodity prices rise simultaneously with a strengthening US dollar, pressure on the exchange rate becomes unavoidable.
Global investors, naturally opportunistic and risk-averse, have begun shifting their funds into safe-haven assets, leaving emerging markets, including Indonesia. This risk-off phenomenon has become evident through foreign investor net sales in the government bond market amounting to trillions of Rupiah within just a few weeks.
However, we cannot simply blame external factors. The First Semester 2026 Economist Survey conducted by LPEM UI involving 85 economists showed that nearly half of the experts believe current economic conditions are deteriorating. There is a growing perception that the “anchor” of our stability is beginning to weaken. The widening state budget deficit that has started to emerge early this year continues to place psychological pressure on the exchange rate.
Markets are beginning to ask: how long can our foreign exchange reserves sustain intervention if this pressure persists? This is where policy credibility is tested. If markets detect uncertainty in monetary and fiscal coordination, capital flight will intensify further.
Bank Indonesia now stands before a painful classic dilemma. Raising interest rates (BI Rate) may help contain capital outflows and stabilize the Rupiah, but it risks choking economic growth that has already begun to slow. On the other hand, allowing the Rupiah to find a new equilibrium without adequate intervention risks triggering imported inflation.
The LPEM UI survey recorded that inflationary pressures, in the eyes of economists, have increased significantly. This is a red warning signal for the purchasing power of the middle class, which has long been the backbone of domestic consumption.
Therefore, the primary recommendation is to strengthen a more credible and transparent monetary-fiscal policy mix.
First, Bank Indonesia needs to ensure the availability of foreign exchange liquidity in the domestic market through instruments that are more attractive for exporters to keep their dollar earnings within the country. The DHE (Export Proceeds Foreign Exchange) scheme must be evaluated for its effectiveness amid exchange rate volatility.
Second, the government must send a firm signal that fiscal discipline remains non-negotiable. Plans to revise the State Finance Law, which could potentially loosen the 3 percent deficit cap, must be communicated with extreme caution so as not to become a boomerang for our sovereign credit rating.
In addition, export market diversification and strengthening domestic industrial value-added must be accelerated. Dependence on raw commodities leaves us highly vulnerable to swings in global prices. Economic transformation through downstream industrialization must be balanced with logistics cost efficiency so competitiveness can be maintained despite currency depreciation.
The banking sector must also remain vigilant regarding the potential rise in non-performing loans (NPLs) if high interest rates persist for a prolonged period.
Ultimately, Indonesia’s economic resilience has been tested through various crises. Our macroeconomic fundamentals, supported by abundant natural resources and demographic structure, remain a long-term attraction for global investors. Today’s turbulence should be viewed as a moment to strengthen our policy anchor, not loosen it.
Stability is not a free gift from the market, but the result of consistency and the courage to make difficult decisions for a sweeter future.
This article was published by ZONA TERBANG.
