By KUSNANDAR & CO., Attorneys at Law – Jakarta, INDONESIA
The continued weakening of the Indonesian rupiah
against the US dollar in recent days is once again raising concerns. On
Wednesday, September 24, 2025, the rupiah opened at Rp16,670 per US dollar,
following a 0.36 percent drop the previous day. This marks its weakest level
since April 2025. Yet, this depreciation comes at a time when the US dollar
index (DXY) is itself weakening. This divergence demands a deeper look: why is
the rupiah under pressure when the global currency environment is not
particularly unfavorable?
The answer lies not merely in external dynamics but in
the reality of domestic policy that has yet to respond adequately to long-standing
structural challenges. The weakness of the rupiah reflects more than just
short-term volatility—it underscores a policy landscape that remains reactive
rather than proactive, and hesitant rather than bold.
Government officials continue to project a message of
macroeconomic stability and solid growth. However, the financial markets remain
unconvinced. The gap between policy narrative and ground-level execution is
increasingly evident. Persistent current account deficits, reliance on imported
inputs, and the limited competitiveness of Indonesian exports are fundamental
weaknesses that have not been addressed in a meaningful or coordinated manner.
Moreover, the response from policymakers has largely
been focused on managing perceptions and stabilizing short-term indicators,
rather than implementing structural reforms. Fiscal incentives have often
lacked strategic direction, with few targeted efforts to drive high-value
exports or industrial transformation. Public investment in innovation,
research, and technology—a vital component for long-term
competitiveness—remains minimal compared to peer economies in the region.
On the monetary side, Bank Indonesia has acted with
relative discipline in defending the rupiah through interest rate policy and
market interventions. But without sufficient support from fiscal and industrial
policy, its tools are limited in effectiveness. We cannot expect a central bank
to hold the line indefinitely when broader economic policy is not aligned to
support currency stability through stronger fundamentals.
Initiatives like downstream industrialization are
promising but face real obstacles on the ground—regulatory uncertainty,
infrastructure bottlenecks, and a workforce that lacks the necessary skills.
Meanwhile, many other emerging economies have begun shifting toward
technology-driven export models and service sector competitiveness. Indonesia,
by contrast, still depends heavily on raw or semi-processed commodity exports.
This reflects the absence of a clear, long-term economic transformation
blueprint with measurable targets and consistent execution.
We must acknowledge that the rupiah's depreciation is
not simply a function of global uncertainty. When other emerging market
currencies begin to stabilize or rebound, yet the rupiah continues to slide,
the issue is domestic. It reflects structural fragility and policy indecision.
This should serve as a wake-up call for the government to recalibrate its
approach—less focus on optics, and more focus on substance.
Rather than relying on superficial measures or
reassuring rhetoric, the government needs to show concrete steps toward
strengthening structural resilience. Industrial reform, regulatory clarity, and
long-term investment in human capital must be top priorities. Without these,
any short-term stabilization will be just that—short-lived.
This moment presents the government with a choice:
continue patching over structural cracks with temporary fixes, or treat this
currency pressure as a turning point for serious economic overhaul. If the
second path is not taken decisively, the rupiah will not only remain vulnerable
but may also lose the market’s trust—something far more difficult to regain
than a few hundred rupiah on the exchange rate.
K&Co - September 23, 2025
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