Indonesia’s Market Struggles: Rupiah Falls, Trade Risks

Indonesia’s economy is under increasing strain as the rupiah weakens, stock markets decline, and new U.S. tariffs threaten key export industries. In response, Bank Indonesia (BI) and the Financial Services Authority (OJK) have introduced emergency measures to stabilize the financial system. However, investor confidence remains fragile amid growing concerns over economic policy and global trade tensions.

The rupiah has dropped to a five-year low. This has prompted Bank Indonesia to intervene in the foreign exchange market to curb further depreciation. The central bank has also decided to keep its benchmark interest rate at 5.75%. It aims to balance inflation control with currency stability.

Meanwhile, the Jakarta Composite Index (JCI) has experienced sharp declines. In response, OJK has implemented a six-month policy allowing listed companies to buy back shares. This policy does not require shareholder approval. The measure is aimed at reducing volatility and preventing panic-driven sell-offs.

Finance Minister Sri Mulyani Indrawati has dismissed speculation about her resignation. She reassured markets that Indonesia’s economic fundamentals remain stable despite the ongoing challenges.

The economic situation has been further complicated by U.S. tariffs on Indonesian exports. These tariffs specifically target palm oil, rubber, and textiles. The move is part of Washington’s broader efforts to reduce reliance on Southeast Asian supply chains. It also aims to counter China’s economic influence in the region.

For Indonesia, these restrictions threaten to disrupt export revenues. They could also put further downward pressure on the rupiah. With demand for its key commodities reduced, the government now faces a major challenge. It must diversify export markets and strengthen trade relations with China, the European Union, and ASEAN partners. These efforts will be crucial in offsetting potential losses.

While Indonesia’s economy is more resilient than in 1998, the combination of currency depreciation, stock market volatility, and trade disruptions is testing the country’s financial stability. In 1998, the economy collapsed due to reckless corporate borrowing, weak banking regulations, and foreign capital withdrawals. Today’s challenges, however, stem from external trade pressures, fiscal policy uncertainty, and global market instability.

The government must now take decisive action to restore confidence. Expanding trade partnerships and maintaining fiscal discipline will be key. Bank Indonesia must also remain proactive in stabilizing the rupiah.

With the rupiah under pressure, stock markets fluctuating, and trade relations shifting, Indonesia must act swiftly. The goal is to preserve economic stability and reassure investors. In the coming weeks, the government’s response will determine whether Indonesia can avoid a prolonged crisis or if further intervention will be required.