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Indonesian rupiah has fallen to the weakest level against the US dollar since the 1998 Asian financial crisis and fears about President Prabobo Subaianko’s policy and the impact on the financial position of Southeast Asia’s biggest economy.
The Rupiah fell to 0.5 per cent on Tuesday from a record low of 16,800 in June 1998 to a temporary hit of 16,640. Not too far from the record low of 16,800, the year of the decline of Indonesia’s former longtime dictator Suharto.
The country’s central bank, the Bank of Indonesia, told the Financial Times it intervened in bond and currency markets on Tuesday.
The bank added that the recent moves in the Rupiah are “driven primarily by global factors that remain highly uncertain. These include Trump’s tariff policy and its impact on other countries, as well as the Federal Reserve’s potentially more hawk policy and ongoing geopolitical tensions.”
The central bank denounced external factors, but investors were surprised by the larger fiscal massive scale, mainly from former Army Prabowo. His flagship program, which offers free lunches to school children and pregnant mothers, costs an estimated $28 billion a year, putting a heavy burden on the government’s finances. Indonesia recorded an unexpected budget deficit for the first two months of the year.
Signs of a slowdown in the economy also reduced investor interest. The economic downturn could lead central banks to cut interest rates and put more pressure on the currency, analysts say.
“The big picture is from a government that is less financially responsible,” said Victor Sabo, fund manager at Aberdeen Investments.
The Rupiah is the worst-performing currency of Asia’s biggest economy this year, falling almost 3% against the dollar. The Benchmark Jakarta Stock Index has been throwing around 14% on dollar terms since its launch in 2025.
Indonesia was one of the biggest casualties of the currency crisis that began with the Thai baht in 1997, and then spread to Asia, relegating Indonesia and other countries to IMF relief packages. Economic misery then burned the street protests that helped to overthrow the Suharto regime.
The crisis has been a critical moment for Asian monetary policymakers since then, having built up their foreign exchange reserves and easily intervened in the markets to ensure that repetition never occurs.
Indonesia ate around $1.5 billion in a mountain of approximately $154 billion in reserves to fund intervention during the first two months of the year, according to central bank data. It regularly intervenes in the spot to support the currency, and is a non-deliveryable forward and bond market.
“We are looking for relative rupiah unperformance to expand into the second quarter despite a soft dollar outlook in the short term,” Barclays analysts cited financial pressure on Indonesia’s assets and negative foreign investors’ sentiment in a research report on Tuesday.
Meanwhile, Indonesian companies are bearing the brunt of competition with cheap Chinese products that have been circumvented into emerging markets. This trend could increase as the US adds to China’s tariffs. Sritex, one of the nation’s largest clothing companies, closed its operations last month.
Observers are currently focusing on governance for new sovereign wealth funds.
The Danantara Fund has appointed billionaire investor Ray Dalio and former Thai Prime Minister Thaksin Sinawatra as foreign advisors this week, but investors are cautious about the political impact on the portfolio, including several state-owned companies.
“We believe there is still uncertainty in the execution and operation of the fund, which could keep the market volatile given the government’s aggressive spending plans,” said analysts at JP Morgan.
Additional Reports by Ian Smith of London
