UNAIR NEWS – The continued decline of the Indonesian rupiah has raised serious concerns about the country’s economic outlook. Beyond increasing import costs, the weakening exchange rate signals underlying domestic vulnerabilities and undermines investor confidence. According to Professor Dr. Imron Mawardi, S.P., M.Si., an economist from Universitas Airlangga’s Faculty of Economics and Business, both global and domestic forces are at play.

“Global instability—exacerbated by protectionist trade policies like those introduced during the Trump administration—has fueled uncertainty across international markets,” he explained. “These policies have disrupted the global economy and financial systems, leading to currency devaluations worldwide, including the rupiah.”

Internal factors

Domestic challenges have also intensified the pressure on the rupiah. Political uncertainty, falling commodity prices, and inconsistent policymaking have shaken investor confidence. As capital exits the market, the national currency comes under additional strain.

This depreciation has had a pronounced impact on businesses reliant on imported materials. As import costs rise, domestic production becomes more expensive, triggering inflationary pressure across sectors.

“When the rupiah weakens, the cost of importing industrial inputs increases,” Prof. Mawardi said. “This drives up production expenses and contributes to cost-push inflation—price hikes caused by rising operational costs.”

Indonesia’s economic potential

Still, Prof. Mawardi expressed cautious optimism about Indonesia’s long-term investment prospects, despite growing competition from countries like Vietnam. He cited the nation’s large consumer base and strong market appeal. However, to maintain its edge, Indonesia must create a more stable and attractive business environment. This includes offering targeted incentives to foreign investors and adopting more consistent economic policies.

He also underscored the critical role of the government and Bank Indonesia (BI) in ensuring currency stability. “The government needs to strengthen exports and attract foreign investment through structured efforts,” he noted. “At the same time, BI should actively intervene to manage short-term exchange rate volatility.”

Public’s role

Prof. Mawardi emphasized that the public, too, plays a part in stabilizing the rupiah. “People should avoid panic-buying foreign currencies like the U.S. dollar,” he advised. “Supporting locally made products can also help reduce reliance on imports and stimulate the national economy.”

In a climate of economic uncertainty, safeguarding stability requires collaboration among the government, business community, and the public. Boosting exports, maintaining consistent policy direction, and encouraging support for domestic goods are key to addressing the ongoing depreciation of the rupiah.

Author: Rosali Elvira Nurdiansyarani

Editor: Khefti Al Mawalia