March 23, 2026 | 04:28 pm
TEMPO.CO, Jakarta - Political Economy and Policy Studies (PEPS) has warned that Indonesia’s rupiah is increasingly vulnerable amid rising global geopolitical tensions, particularly the conflict in Iran.
Anthony Budiawan, Managing Director of PEPS, said the possibility of the rupiah weakening to around Rp20,000 per US dollar is no longer hypothetical but grounded in historical patterns.
“Indonesia has been lulled by the narrative that Indonesia's economy is strong, with large foreign exchange reserves exceeding US$150 billion,” Anthony said in a written statement on Monday, March 23, 2026.
He explained that while Indonesia’s economy appears robust on paper, supported by substantial reserves and a relatively stable debt structure, these figures do not fully reflect underlying vulnerabilities. From fiscal, monetary, and exchange rate perspectives, the country remains exposed to external shocks.
Anthony highlighted that Indonesia is particularly sensitive to global pressures.
“Conflict in the Middle East has the potential to disrupt global energy supplies, which would then impact the rise in oil prices and external pressure on Indonesia's balance of trade. This situation could trigger an outflow of capital from emerging markets to assets considered safer,” he said.
Foreign Reserves and Debt
Anthony also noted that Indonesia’s foreign exchange reserves do not entirely reflect true economic strength. “Part of these reserves comes from the accumulation of foreign debt, both by the government and the central bank, used to maintain exchange rate stability through market interventions,” he said.
This approach has limitations. Historical episodes illustrate how quickly the rupiah can come under stress. During September 2014–2015, foreign exchange reserves decreased by around US$9.44 billion, and the rupiah depreciated by about 20 percent.
The government responded by issuing global bonds. Similar pressures resurfaced in 2018, when reserves shrank by US$17.13 billion, and the rupiah fell around 13.5 percent, prompting increased foreign debt issuance, including global bonds and sukuk.
The most acute episode occurred at the beginning of the Covid-19 pandemic in 2020. “In about a month, foreign exchange reserves fell by around US$10.7 billion, and the rupiah weakened by about 20 percent. The government once again relied on the issuance of global bonds to stabilize the market,” Anthony said.
From these periods, he concluded that “the stability of the rupiah is highly dependent on the continuation of external fund flows. Large foreign exchange reserves do not automatically guarantee exchange rate stability.”
Anthony also highlighted a long-term contradiction: “Foreign exchange reserves increased from around US$100 billion in 2014 to about US$150 billion in early 2026, but the rupiah actually weakened from around Rp 12,000 to about Rp 17,000 per US dollar.”
Potential Depreciation Scenarios
In the first two months of 2026, foreign exchange reserves decreased by around US$4.6 billion, even though the government raised foreign debts of around US$7.1 billion.
Anthony said if the downward pressure on the rupiah continues, especially with the added strain from the Iran conflict, the currency could weaken by 15–20 percent from its current level of around Rp17,000 per US dollar, potentially reaching roughly Rp20,400 per dollar, based on comparisons with past periods of exchangerate stress.
In a more extreme scenario, Anthony noted that depreciation could exceed 20 percent in a relatively short period of three to six months. He warned that the 1997 crisis showed how a sharp rupiah depreciation could trigger a broader economic crisis if policy responses are delayed.
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