Key facts
- Indonesia's rupiah has fallen to a record low of 18,190 against the U.S. dollar.
- The currency has experienced its steepest drop since 2020, falling 8% this year and 7% since the Iran war began.
- Investor confidence in Indonesia has waned due to unorthodox policy decisions and global energy shocks.
- Credit default swaps suggest Indonesia may lose its investment-grade credit rating.
- The country's stock market is the world's weakest performer in 2026, down over 42%.
- Foreign ownership of Indonesian government bonds has fallen to a near 20-year low of 12.6%.
Indonesia's currency, the rupiah, has hit a record low against the U.S. dollar, trading at 18,190 per dollar, amid a growing confidence crisis among investors. The currency's sharp decline, the steepest since 2020, is seen as both a symptom and a source of trouble, potentially fueling inflation and tightening financial conditions. This downturn follows a series of unorthodox decisions by President Prabowo Subianto's administration, including centralizing commodity exports and expanding the central bank's mandate, alongside the impact of global energy shocks.
Investor sentiment has soured, with credit default swaps indicating a risk of losing investment-grade status. The country's stock market is the world's weakest performer in 2026, down over 42%, and foreign ownership of government bonds has collapsed to a near 20-year low. Despite a recent 50-basis-point rate hike and a significant drop in foreign exchange reserves, the rupiah continues to weaken.
Analysts express concerns about governance and transparency, with some noting the potential for a self-reinforcing 'doom-loop' where currency depreciation exacerbates economic pressures. The government's commitment to expensive populist policies, such as a flagship free meals program, further strains the budget, especially amidst rising energy costs.
Rating agencies Moody's and Fitch have revised their debt rating outlooks to negative, citing reduced policymaking credibility. S&P is monitoring efforts to improve fiscal buffers. The recent passing of laws granting parliament new powers over the central bank has also raised concerns about its independence. The appointment of Nanik Sudaryati Deyang as the new head of the National Nutrition Agency follows the arrest of her predecessor and two deputies on graft charges related to the free meals program.