Key facts
- Indonesia's rupiah reached a record low of 18,190 against the U.S. dollar.
- The currency has fallen 8% this year and 7% since the Iran war began, its steepest drop since 2020.
- Investor confidence in Indonesia has declined due to unorthodox policy decisions and global energy shocks.
- Credit default swaps indicate a risk of Indonesia losing its investment-grade credit rating.
- The country's stock market has declined over 42% in 2026, making it the world's weakest performer.
- Foreign ownership of Indonesian government bonds has dropped to a near 20-year low of 12.6%.
Indonesia's President Prabowo Subianto is facing a crisis of investor confidence, with his administration's policies contributing to a plunging currency and a weakening economy. The rupiah has hit a record low of 18,190 against the U.S. dollar, marking its steepest decline since 2020, down 8% this year and 7% since the Iran war began.
Unorthodox decisions, including centralizing commodity exports under a sovereign fund and expanding the central bank's mandates, have eroded investor trust. These moves, coupled with global energy shocks, have made Indonesia's stock market 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%, down from nearly 40% before the COVID-19 pandemic.
Analysts describe a potential "doom-loop" where persistent currency depreciation fuels inflation, tightens financial conditions, and ultimately weighs on growth. Despite a 50-basis-point rate hike in May and a $12 billion drop in foreign exchange reserves, the rupiah continues to fall. Credit rating agencies Moody's and Fitch have revised their outlooks to negative, citing reduced policymaking credibility, while S&P awaits efforts to improve fiscal buffers.
Concerns are also mounting over the central bank's independence, with new laws granting parliament greater power to direct its mandates. The government's commitment to expensive populist policies, such as free school meals, amid budget pressures from fuel subsidies, further exacerbates fiscal concerns. Investors are increasingly pricing Indonesia as a market with rising policy risk rather than a reliably orthodox emerging market.