A Weakening Rupiah, Ministerial Optimism, and the Legal Test of State Policy Credibility

 By Kusnandar & Co., Attorneys At Law – Jakarta, Indonesia

 

The rupiah’s depreciation toward the psychological level of IDR 17,000 per US dollar is not merely an economic issue. It represents a serious test of the credibility of fiscal and monetary policymaking within Indonesia’s legal framework. Finance Minister Purbaya Yudhi Sadewa’s assertion that the rupiah’s weakness is temporary and will soon reverse due to improving fundamentals and foreign capital inflows deserves rigorous scrutiny—not only from an economic standpoint, but also from the perspective of constitutional law and public finance governance.

 

Executive Optimism Versus the Principle of Fiscal Prudence

 

Normatively, Article 23 of the 1945 Constitution of Indonesia mandates that state finances be managed in a responsible, transparent, and accountable manner for the greatest prosperity of the people. When the 2025 state budget deficit reaches 2.92 percent of GDP, approaching politically and economically sensitive thresholds, market anxiety is neither irrational nor speculative—it is a rational response to perceived fiscal risk.

 

In this context, government optimism that relies heavily on a record-high Composite Stock Price Index (IHSG) and the expectation of foreign inflows risks undermining the prudential principle that lies at the core of public financial law. The legal framework governing state finances does not permit policy decisions grounded in hopeful projections alone; it requires certainty, discipline, and policy consistency.

 

Central Bank Independence: More Than Mere Speculation

 

Minister Purbaya’s dismissal of concerns linking the rupiah’s depreciation to rumors surrounding the potential appointment of Thomas Djiwandono as Deputy Governor of Bank Indonesia (BI) must be examined through a legal lens. Law No. 23 of 1999 on Bank Indonesia, as amended, unequivocally guarantees the independence of the central bank from government and political influence.

 

However, financial markets do not operate on statutory assurances alone; they react to perceptions of institutional risk and conflicts of interest. When an individual with close familial ties to the President is rumored to be positioned for a strategic role within the central bank, investor unease is not a personal attack—it is a question of good governance and the rule of law. In administrative law, the principle of freedom from conflicts of interest is not merely ethical guidance but a prerequisite for the legitimacy of public policy.

 

To underestimate this sensitivity is to underestimate the legal importance of central bank independence itself.

 

Global Pressures Do Not Eliminate the State’s Legal Responsibility

 

It is undeniable that escalating geopolitical tensions, renewed trade wars, and the strengthening of the US dollar as a safe-haven asset have placed significant pressure on emerging market currencies. Yet from a legal-economic perspective, external shocks cannot serve as a justification for weak domestic policy responses.

 

The state—through the government and Bank Indonesia—bears a legal obligation to maintain monetary and fiscal stability. When extensive stimulus measures have already been deployed yet markets remain skeptical about the economy’s growth trajectory, the core issue lies not in the volume of intervention but in the clarity, coherence, and credibility of policy design and implementation.

 

The Rupiah and a Crisis of Legal Confidence

 

The current weakness of the rupiah reflects more than currency market volatility. It exposes a broader crisis of confidence in Indonesia’s legal and institutional economic framework. As long as government responses emphasize political reassurance over structural fiscal reform, strengthened governance, and uncompromising respect for central bank independence, the rupiah will remain vulnerable to both domestic and global shocks.

 

In a state governed by the rule of law, economic stability is not built on rhetoric. It is secured through legal certainty, fiscal discipline, and institutional integrity. Absent these foundations, optimism risks becoming little more than a fragile political narrative—easily dismantled by market realities.

By : K&Co - January 20, 2026