In the midst of very dynamic global economic turmoil, Indonesia is facing major challenges with the weakening of the Rupiah exchange rate. Despite this, Indonesia’s economic fundamentals continue to show significant strength. This strong economic resilience provides a bulwark in facing external pressures, reflecting solid macroeconomic stability and promising growth potential.
Often a weakening Rupiah exchange rate is seen as an indicator of economic weakness. However, this situation must also be seen in a broader context. The weakening of the Rupiah is not merely a reflection of domestic factors, but is also influenced by global economic dynamics such as monetary policy in developed countries, commodity price fluctuations and geopolitical uncertainty.
Indonesia’s strong economic fundamentals can be seen from several key indicators. First, Indonesia’s economic growth remains stable at around 5 percent, supported by strong domestic consumption and investment that continues to grow. Second, inflation is within a controlled range, reflecting the effectiveness of Bank Indonesia’s monetary policy in maintaining price stability.
In addition, Indonesia’s foreign exchange reserves remain at a safe level, providing sufficient buffer to deal with market volatility. The government debt to GDP ratio is also relatively low compared to other countries in the region, indicating prudent fiscal management .
The Indonesian government also continues to carry out structural reforms to increase competitiveness and economic productivity. Investment in the infrastructure sector, improving the quality of human resources, and simplifying regulations are the main focus to create a conducive and attractive business environment for investors.
Minister of Finance, Sri Mulyani Indrawati also emphasized that even though the rupiah exchange rate was corrected to Rp. 16,400, the Indonesian economy still showed strong stability. This is proven by various positive macroeconomic indicators, such as retail sales and banking credit conditions which are still stable.
Macro indicators that support economic stability include the real public sales index which reflects the recovery in consumption, the Mandiri Spending Index (MSI), the level of public confidence, as well as cement and electricity consumption. A maintained Purchasing Managers’ Index (PMI) also provides a fairly good foundation for projecting economic growth in the second quarter, as happened in the first quarter. Apart from that, banking credit also experienced an increase as reflected in the expansion of investment credit, working capital and consumption. .
Total credit grew by 12.3 percent and an increase in third party funds by 8.1 percent shows the health of the banking sector. Management of this year’s APBN will continue to be carried out carefully to face challenges such as fluctuations in the rupiah exchange rate, changes in oil prices, and yields on Government Securities (SBN) issued by the government. Coordination with Bank Indonesia (BI) will continue to be carried out to maintain exchange rate stability in the face of high market and global dynamics as well as the political transition process.
BI Governor Perry Warjiyo said that although macro indicators showed the rupiah should strengthen, strong external factors caused the exchange rate to weaken. Geopolitical tensions and Fed Fund Rate decisions that do not meet expectations affect short-term exchange rates. BI responded by raising the benchmark interest rate, causing the rupiah to weaken to a level of IDR 15,900 per US dollar.
Since the end of 2023, the rupiah exchange rate has weakened by 5.92 percent, which is still better compared to other countries’ currencies such as the South Korean won and the Thai bath. BI will continue to play a role in the market to stabilize the rupiah exchange rate, one of which is by using foreign exchange reserves which are currently at $139 billion. The Rupiah is projected to strengthen due to fundamental factors such as low inflation and good economic growth.
The Head of the National Food Agency (Bapanas), Arief Prasetyo, also responded to the weakening of the rupiah exchange rate, who said that the current conditions were the right time to increase domestic food production, considering that world food prices are currently high. According to him, domestic production needs to be prepared so that it can be exported if there is a surplus, so that Indonesia can become a food basket.
Strengthening Government Food Reserves (CPP) is also important as an instrument in maintaining stable food supplies and prices. All stakeholders in the food sector need to work together to increase CPP production. Strengthening the CPP is very beneficial because it can help absorb the production of farmers and breeders at good prices, and is used for government intervention in food stabilization.
The stock level for each strategic food commodity that is a CPP, based on Presidential Decree 125 of 2022 concerning the Implementation of Government Food Reserves, should ideally be around 5 to 10 percent of national needs. For rice commodities, for example, the annual need for rice is around 31.2 million tons, so the government’s rice stock must be at least 1.5 million tons. Currently, the stock of Government Rice Reserves (CBP) in Bulog reaches 1.6 million tons.
Strengthening the CPP could be an option to ensure stable food availability and affordable prices for all levels of society. President Joko Widodo even directly monitors it during every visit to check the stock and availability of rice in the Bulog warehouse, ensuring the stock is safe. Fulfillment of rice stocks must be prioritized from domestic production in order to answer the challenges and dynamics of the strategic environment.
Overall, even though the Rupiah is experiencing pressure, Indonesia’s economic fundamentals remain strong and solid. With the right policy approach and ongoing reform, Indonesia is ready to maintain economic growth and overcome the challenges of a very dynamic global economy.
