The 2018 Rupiah Weakening Was Not as Severe as During Indonesia's Crisis

On Wednesday (October 3rd), the Indonesian Rupiah closed at Rp 15,075 per US dollar, depreciating 10.53% from its year-end position. This weakening is the worst in the last five years. The price of Brent crude oil, which briefly touched US$86 per barrel, further fueled the rupiah's decline to Rp 15,188 per US dollar in Thursday's (October 4th) transactions until 12:30 WIB.

Although it has fallen to its lowest level in 20 years, the current weakening of the rupiah is not as deep as that experienced in 2010 or during the 1997-1998 Indonesian monetary crisis. The impact of the US financial crisis caused the rupiah to weaken by up to 26%. Even during the Asian financial crisis, the rupiah depreciated by more than 56% against the US dollar: 56% in 1997 and 32% in 1998.

Indonesia's economic fundamentals today differ significantly from those during the 1997-1998 crisis. The domestic economy grew by approximately 5% in the first half of 2018, inflation remained controlled at 3%, and foreign exchange reserves stood at US$118 billion. During the crisis, the economy contracted by more than 13%, inflation reached 70%, and foreign exchange reserves were only around US$18 billion. To reduce the trade deficit, which can weaken the rupiah, the government is reducing imports by increasing import duties on several categories of goods and will boost foreign exchange earnings from the tourism sector.