Indonesia's Rupiah Plummets to Historic Lows, Sparking Economic Pain and Rising Debt

Over the past six months, the world has been glued to charts, gripped by the high price of oil.

But in Indonesia, there's another chart that's been causing fear and anxiety.

Indonesia's currency, the rupiah, has fallen to historic lows against the US dollar.

From September 2024, it went from about 15,000 rupiah per $US1, passing a psychological threshold of 17,000 rupiah in April this year.

It worsened through June to more than 18,000, and has stubbornly remained around that low ever since.

The rate is worse than it was during the 1998 Asian financial crisis, which sparked such severe unrest and protests that it led to the downfall of Indonesia's former authoritarian president Suharto.

And despite the war in the Middle East causing pain across Asia, some Indonesian economists say it is mostly domestic factors that have made the rupiah one of the worst-performing currencies in the region.

"The damage in most of the economy is quite severe," economist Dipo Satria Ramli said.

"Everyone is quite affected."

The nation's central bank, Bank Indonesia, has issued four rate rises in quick succession to try and wrangle the slide in the rupiah.

But further fears have been raised after the sudden resignation of the bank's governor, well before the end of his second term.

While the government scrambles to stabilise the currency, the crisis is inflicting a serious toll on Indonesians.

'A lot of businesses could go bankrupt'

The drop in currency has been acutely felt by the nation's Tempeh makers.

Tempeh is an iconic Indonesian food made from soybeans, which are mostly imported from the United States.

It is a major source of affordable protein, but the declining rupiah has been pushing up the price of soybeans.

Ahmad Saikhu, a long-time tempeh maker and secretary-general of a 4,000-strong producers association, said he and the members were in "total disarray".

"If this keeps going on, our family finances will become total chaos," he said.

"The government isn't really managing to control these prices, leaving grassroots producers at the bottom with their livelihoods in total disarray."

Ahmad said he and other producers have had to cut down the size of their packages, because they cannot increase the prices they sell at.

"We have to survive so we can continue supplying the protein needs of low-income people," he said.

At a street food market in Central Jakarta, the increasing cost of imports has been squeezing already low-income sellers.

Chilies, broths, and sambal, a type of spicy sauce, are commonly packaged in plastic for customers here.

But the cost of naphtha, a key petrochemical used to make plastics, has soared because supplies have been choked off with the effective closure of the Strait of Hormuz.

The sinking currency has acted as a double-whammy, further causing the price of plastic products to surge.

"The main increase is definitely plastic," Andri, a satay seller, told the ABC.

"It's well over 50 per cent higher."

Andri has also noticed the market getting quieter, driven by less demand and tighter economic conditions.

"This current situation is getting pretty concerning … every one of us is taking home less money, and as for customers, there are fewer of them coming by," he said.

Another seller in the market, Syamsul, has had to raise prices at his noodle cart.

"Every day more and more goods are going up in price, while everyone's spending less," he said.

"The impact on me is pretty substantial … what choice do you have? Sometimes you just have to look for loans here and there."

Tens of millions of Indonesians are taking out online loans, known locally as pinjol, to help cover basic costs.

The growth in potentially risky pinjol loans has been rapid, with the amount of money borrowed growing by 25 per cent from the middle of 2025 to the middle of this year.

According to the government's financial services regulator, more than $8 trillion has been borrowed in these types of loans by tens of millions of Indonesians, mostly people aged under 35.

Rising inflation and stagnant wages

Economist Dipo Satria Ramli estimated "50 to 60 per cent" of the decline in the rupiah was because of domestic factors and not because of shocks from the war in the Middle East.

He said three issues were contributing to the decline: "unpredictable policies", concern over transparency and accountability, and fiscal policy.

"[Inflation] is across all different goods," Dipo said.

"At a consumer's perspective, it's eating up purchasing power."

Most people in Indonesia work in what's known as the "informal sector", which covers unregulated work, such as markets and manual labour, and typically pays low wages.

But Dipo said workers in the "formal sector", which includes corporations and government, were feeling the pain too.

In a statement, Indonesia's Finance Minister Purbaya Yudhi Sadewa said: "The depreciation of the rupiah is considered to be driven more by market sentiment than by changes in national economic fundamentals.

The government, together with relevant authorities, continues to maintain financial system stability through coordination within the Financial System Stability Committee (KSSK).

The government is ensuring that inflation remains within a controlled range."

The pain has not been localised to just the currency, with Indonesia's stock market losing almost 30 per cent this year.

The Jakarta Composite Index ranks as one of the worst-performing major equity markets in the world.

Major index provider MSCI has flagged it could downgrade Indonesia's equity market status, saying it was concerned about transparency.

Earlier this year, ratings agencies Moody's and Fitch lowered Indonesia's credit rating to negative.

Fitch Ratings said this was because of an "increasing policy uncertainty and erosion of Indonesia's policy mix consistency and credibility amid growing centralisation of policymaking authority".

On Wednesday, Indonesia's economic growth slowed to 5.3 per cent, down from 5.6 per cent earlier in the year, although it outperformed earlier predictions.

And even though the currency rate is worse than during the 1998 crisis, economists say that institutions are stronger now and the decline in the rupiah has been much more gradual this time around, allaying fears of economic-related unrest.

Across Indonesia, people are appealing for greater support.

"That's all we can do … we don't have any other way to voice our struggle.

"We're appealing to the president and the government to resolve this issue."