Indonesian Rupiah Under Pressure, Becomes Asia's Weakest Currency for 2025-2026, Exchange Rate Falls to Lowest Since 1998 Asian Financial Crisis
The Indonesian rupiah has continued to depreciate significantly against the US dollar, becoming the weakest currency in Asia, recently reaching a range of 16,900-18,000, a rare low since the 1997-98 Asian financial crisis.
Since President Prabowo Subianto took office, the market has reassessed his fiscal expansion plans, deficit path, and concerns over central bank independence, including a large-scale free nutrition program and appointments of cronies, leading to intensified capital outflows and bond sell-offs. Despite multiple interventions by the central bank, the downward trend has not been halted.
Foreign capital is rapidly withdrawing from Indonesian sovereign bonds and the stock market, with funds shifting towards emerging markets with better fiscal discipline and policy stability. The pressure on the rupiah is driving up import costs and inflation risks, while resource-based companies benefiting from improved export competitiveness are under pressure due to a collapse in overall confidence.
Source: Public Information
ABAB AI Insight
The Prabowo government has pushed for large-scale welfare spending and adjustments to the sovereign wealth fund, similar to the fiscal expansion before the 1997-98 crisis that amplified external shock risks. The historical reliance on political appointments in the later Suharto era weakened institutional independence, leading to long-term damage to investor confidence.
In terms of capital flow, the government is directing budget resources towards free meal programs and defense, using redistribution and potential deficit relaxation to garner short-term political support, motivated by a campaign promise to boost growth to 8%. However, this has led to billions of dollars in foreign capital exiting the bond market, with resources concentrated on domestic demand stimulation rather than restoring external confidence.
Similar to the fiscal easing paths of Thailand and South Korea before the Asian financial crisis, Indonesia's economy is in a fragile stage of transitioning from post-crisis cautious management to expansion. Prabowo's policies are facing similar market tests.
Essentially a regulatory change, Prabowo's interventions in central bank independence and fiscal rules are reshaping market access mechanisms, causing pricing power to shift from technocrats to political drivers, leading capital to move to regions with higher policy certainty, forcing Indonesia to seek a new balance between growth targets and exchange rate stability to avoid a confidence spiral collapse.
ABAB News · Cognitive Law
Fiscal expansion for growth, loss of confidence for crisis.
Political appointments build short-term walls, markets punish the dismantling of moats.
Welfare locks in votes, deficits amplify exchange rates, stability defines capital.