TEMPO.CO, Jakarta - Listya Endang Artiani, a lecturer and researcher at the Islamic University of Indonesia (UII), drew a comparison between the current value of the rupiah and its position during the 1998 monetary crisis.
She pointed out that the current e-Rate, which has reached Rp16,950, is nearly on par with and even slightly above the crisis peak in nominal terms.
"During the height of the 1998 crisis, the rupiah traded at around Rp16,800 to Rp17,000 per U.S. dollar in the spot market. With today’s e-Rate hitting Rp16,950 (selling rate), we’re already approaching, if not surpassing, that nominal peak," she told Tempo on Monday, April 7, 2025.
Nevertheless, Listya emphasized that the comparison should be seen in context. She noted that Indonesia’s current economic fundamentals are significantly stronger, with more robust foreign exchange reserves, a healthier banking sector, and more advanced tools for stabilizing the exchange rate.
"So even though the nominal figures are similar, our economic fundamentals today are not as bad as in 1998," said Listya.
She pointed out that the current rupiah exchange rate is the highest since the 1998 crisis. Based on her analysis of BCA's e-Rate data from March 28 to April 7, 2025, the selling rate for the U.S. dollar reached Rp16,950 on April 7, a figure likely to be the highest since the monetary turmoil of 1998.
"Moreover, when compared to the Covid-19 pandemic period (2020), this value is higher. This indicates that the pressure on the rupiah is not an illusion but is real and should be monitored," she added.
Listya pointed out that the rupiah is not just a monetary symbol but a mirror of market confidence in the economy.
Maintaining exchange rate stability is not only the duty of Bank Indonesia but also requires cross-sector coordination such as fiscal, monetary, and economic diplomacy.
"Fluctuations may occur, but allowing them to turn into a crisis is a choice that can and must be prevented," said Listya.
According to monetary economic theory, exchange rates are determined by the interaction of foreign exchange supply and demand, Listya explained.
The Purchasing Power Parity (PPP) theory suggests that over the long term, exchange rates will adjust to balance purchasing power across countries. In the short term, however, exchange rate movements are largely driven by market perceptions, expectations, and capital flows.
Listya explained that the sharp depreciation of the rupiah in recent days can be explained through the Interest Rate Parity (IRP) theory, which states that the difference in interest rates between two countries will determine capital flows.
When the Fed interest rate rises while domestic interest rates remain steady, investors will withdraw their capital from the domestic market to seek higher returns, triggering a demand for dollars and putting pressure on the rupiah.
From a political economic perspective, exchange rate volatility reflects the tension between macroeconomic stability and short-term political interests.
Listya explained that the government’s hesitation to raise interest rates, driven by concerns over potentially weakening domestic consumption and investment, could ultimately damage market confidence and result in even greater economic consequences.
"Here, it is seen that monetary policy is never politically neutral," she said.
She also emphasized a public policy perspective that underscores the need for strong coordination between the central bank and fiscal policymakers. In times of external pressure, a lack of synchronization can deepen negative market sentiment.
Without clear and strategic communication, Listya noted, the market tends to react based on worst-case assumptions rather than actual data.
"By understanding the interaction between monetary factors, political expectations, and policy responses, we can see that the exchange rate crisis is not just a numerical phenomenon but a product of complex policy structures and actions," said Listya.
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