
The Indonesian currency reaches its weaker level in decades, reflecting fears on Prabowo’s economic policy and the fiscal impact of its spending
Indonesian currency reaches its weaker level in decades, reflecting fears on Prabowo’s economic policy and the fiscal impact of its spending. According to the Financial Times, Indonesian rupia has fallen to its weakest level against the US dollar since the 1998 Asian financial crisis, driven by growing fears on the policies of President Prabowo Subiante and its impact on the fiscal position of Southeast Asia’s largest economy.
Rupia dropped 0.5% early on Tuesday, soon reaching 16,640 per dollar, not far from its historic minimum of 16,800 in June 1998, the year of the Suharto fall, the former longtime dictator of Indonesia.
The Indonesian Bank, the country’s central bank, told the Financial team that he intervened in title and currency markets on Tuesday “to ensure the stability of the rupement exchange rate and maintain the balance between foreign supply and demand, thus preserving market confidence.”
The bank added that recent movements of rupia “are mainly driven by global factors that remain highly uncertain … This includes Trump’s tariff policies and their impact on other countries, the potentially more aggressive policy of the Fed and continuous geopolitical tensions.”
Although the Central Bank has blamed external factors, investors have been mainly frightened by the largest fiscal generosity of the former Army General Pabowo. Its key program, which offers free lunches for school-age children and pregnant mothers, costs about $ 28 billion a year and puts a huge pressure on government finances. Indonesia recorded an unexpected budget deficit in the first two months of the year.
Signs of economic slowdown also reduced investors’ interest. A slow economy could force the Central Bank to cut interest rates by adding even more pressure on the currency, analysts say.
“The general framework is that of a less tax -responsible government,” said Viktor Szabo, Aberdeen Investments funds manager.
Rupia has been the worse coin among Asia’s largest economies this year, with a drop of almost 3% against the dollar. The Jakarta Reference Setting index has also lost about 14% in terms of dollars since the beginning of 2025.
Indonesia was one of the greatest victims of a currency crisis that began with the Thai Baht in 1997, before spreading through Asia and forcing Indonesia and other countries to seek IMF rescues. Economic misery then inflamed protests on the streets that helped overthrow the Suharto regime.
The crisis was a decisive moment for a whole generation of Asian monetary policy formulators, which since then accumulated exchange reserves and readily intervened in the markets to ensure that a repetition could never happen.
Indonesia has already consumed about $ 1.5 billion of its reserves of approximately $ 154 billion to fund interventions in the first two months of this year, according to Central Bank data. The country has regularly intervened in cash markets, the non -surrendered future contracts market and the title market to support the currency.
“We hope that the relative underpinning of rupia will extend to the second quarter, despite a probably smoother perspective for the dollar in the short term,” Barclays analysts said in a research report on Tuesday, citing fiscal pressures and the negative feeling of foreign investors in relation to Indonesian assets.
Meanwhile, Indonesian companies are facing the weight of cheap Chinese competition that have been diverted to emerging markets. This flow may increase if the US adds more tariffs on China. Sritex, one of the largest clothing companies in the country, ended operations last month.
Observers are now focused on the governance of a new sovereign background of wealth.
The Danantara Fund has appointed investor billionaire Ray Dalio and former Piminator-Minister Thaksin Shinawatra as foreign counselors this week, but investors are cautious about political influence on a portfolio that will include several state companies.
“We believe there is still uncertainties about the execution and operation of the fund, which could maintain the volatile markets, given the aggressive government spending plans,” said JPMorgan analysts.
With information from Financial Times*
Source: https://www.ocafezinho.com/2025/03/25/rupia-despenca-e-revive-temor-da-crise-financeira-de-1998/