Indonesia hasn’t collapsed. Yet.
Indonesia's rupiah is weaker than during the crisis that toppled Suharto — and more than half the damage is self-inflicted.
The Indonesian rupiah has broken through a level that, within living memory, brought down a government. At more than 18,000 rupiah to the US dollar, the currency is now weaker than it was during the 1998 Asian financial crisis that ended Suharto's 32-year rule and reshaped the region's politics for a generation. The streets are quieter. Street food vendors are taking loans to cover costs. The man who makes tempeh, the affordable soy protein that feeds tens of millions of low-income Indonesians, says he expects mass bankruptcies within three to six months. Indonesia has not collapsed. But the trajectory is not reassuring.
Fifty to sixty per cent of this crisis is self-inflicted
The headline figure, 18,000 rupiah per dollar, is striking enough. But the more telling number comes from economist Dipo Satria Ramli's assessment that 50 to 60 per cent of the decline is attributable to domestic factors: unpredictable policy settings, weak transparency and accountability, and fiscal mismanagement. External pressures, including the Strait of Hormuz closure that has pushed energy and petrochemical prices sharply higher across Asia, account for the remainder. That split matters because it tells you the problem is not simply bad luck. It is partly a system failing under strain it helped create.
The transmission of that failure runs directly through the stomachs of ordinary Indonesians. Tempeh is made from imported American soybeans; when the rupiah falls, the price of soybeans rises in local terms. Plastic packaging is made from naphtha, a petrochemical derivative; with oil markets in turmoil and the Strait of Hormuz effectively closed, import prices have surged sharply, and the falling currency compounds the hit. A satay seller in Central Jakarta told the ABC his plastic costs are up more than 50 per cent. His customer numbers are falling. This is not an isolated anecdote: it is a description of a demand compression happening at the base of the economy.
Debt taken on during a currency slide to pay for food is not productive investment. It is deferred distress.
Bank Indonesia's response is orthodox — and already compromised
The response from Bank Indonesia, four rapid interest rate rises, is orthodox and probably necessary. But it comes with a problem. The governor of Bank Indonesia resigned well before the end of his second term, an event that in any country signals something wrong inside the institution responsible for monetary credibility. Central bank governors do not typically walk away from jobs that matter unless something has made staying difficult. Markets noticed.
Meanwhile, tens of millions of Indonesians, most of them under 35, are filling the gap between stagnant wages and rising costs with online loans. The amount borrowed through these pinjol platforms grew 25 per cent in a single year, reaching the equivalent of more than $8 trillion in aggregate. That is the kind of number that looks manageable until it is not. Debt taken on during a currency slide to pay for food is not productive investment. It is deferred distress.
Australia's exposure is not abstract
Here is where Australia needs to pay serious attention. Indonesia's 280 million people make it the world's fourth most populous country and, by some measures, Australia's most consequential neighbour. The two economies are woven together through trade, investment, and the geography of the Indo-Pacific. Australia sells Indonesia coal, wheat, and cattle. Indonesia supplies Australia with manufactured goods, tourism revenue, and, in calmer times, strategic reassurance that the archipelago between Australia and the wider region is stable and governed.
A managed currency crisis, painful as it is, may resolve without a larger rupture. That has happened before. But if the combination of currency collapse, institutional erosion, and widespread economic pain reaches the point where political stability fails, the variables change entirely. The 1998 crisis produced not only Suharto's fall but months of civil unrest, ethnic violence, and a refugee situation that affected Australia directly. The country's democratic institutions are more robust now than they were then. But institutions are only as robust as the economic conditions that allow them to function.
Australia's exposure is not abstract. Disrupted trade routes through Indonesian waters, a humanitarian emergency on our maritime doorstep, and the security implications of a destabilised archipelago are not scenarios reserved for strategy documents. They are the logical endpoints of a trajectory that, right now, is still running in the wrong direction.
The rupiah has not triggered a political crisis yet. The government in Jakarta says inflation is being managed. Analysts say the damage is already severe. Both things can be true at once. What history suggests, and what 1998 demonstrated in detail, is that currency crises of this depth do not simply resolve themselves. They either get controlled or they get worse. There is no stable position in between.
Sources
ABC News — Inside this street food market are signs of a crashing currency
The Bearing — Not always cheaper overseas
The Bearing — Fuel Crisis the Sequel: This time, it's the same
Frequently Asked Questions
How does Indonesia's rupiah compare to its 1998 Asian financial crisis level?
The rupiah has now fallen past 18,000 to the US dollar, weaker than at any point during the 1998 Asian financial crisis that ended Suharto's 32-year rule. That crisis produced months of civil unrest, ethnic violence, and a refugee situation that reached Australia directly.
Why is the rupiah falling — is it just because of global conditions?
No. Economist Dipo Satria Ramli estimates that 50 to 60 per cent of the decline is attributable to domestic factors: unpredictable policy settings, weak transparency and accountability, and fiscal mismanagement. External shocks, including rising energy prices from the Strait of Hormuz closure, account for the remainder.
Why does Indonesia's currency crisis matter to Australia?
Australia sells Indonesia coal, wheat, and cattle, and relies on stable Indonesian waters for regional trade routes. A political rupture in a country of 280 million people on Australia's maritime doorstep would carry consequences ranging from disrupted trade to a potential humanitarian emergency.
What is a pinjol and why is Indonesia's online lending surge a warning sign?
Pinjol are Indonesian online lending platforms, and borrowing through them grew 25 per cent in a single year as ordinary Indonesians used debt to cover rising food and living costs. Debt taken on to pay for basic goods during a currency slide is not productive investment — it is deferred distress that can crystallise rapidly if conditions worsen.
Can Indonesia stabilise without a political crisis this time?
It is possible: Indonesia's democratic institutions are more developed than in 1998, and Bank Indonesia has responded with four rapid interest rate rises. But the central bank governor resigned before his term ended, a sign of institutional strain, and currency crises of this depth historically do not hold at a steady state — they either get controlled or they get worse.